Changing Retail Landscape in India

1. Changing Retail Landscape in India

2. Indian Retail – Buoyed by high GDP growth Real Growth Rate Source :Central Statistical Organization (CS0) Projections of 8% sustainable real GDP growth rate till 2020 promise high growth potential for Indian Retail…

3. India Experiencing Rapid Economic Growth GDP (US$ bn) Real Growth Rate 9.4% growth rate makes India the second fastest growing economy in the world

4. Led by Growth in Services Sector % Increase in growth over the previous year Services sector adding to GDP in a significant manner

5. Driven from Consumption Throughout the 1.1 Billion Population 5-7 million Super Rich 70 – 80 million Afford Cars, Private Healthcare & Foreign travel 250 - 300 million Afford goods like Refrigerators , Scooters & Colour TVs 600-700 million (Generally Rural) Afford simple industrial products e.g. bicycles , radios , textiles Poverty Line = income less than $ 1/day 60 % of India’s population are under 24 years Source: McKinsey,

6. With High Private Consumption GDP US$ 935 billion Food Apparel Beverages Footwear Consumer durables Appliances Stationery Kitchen utensils Furniture Furnishings Sports goods Health & Beauty Personal Care Jewellery Timing Private Consumption US$580 Billion (62%) Public Spending and Capital Formation US$ 355Billion (38%) Transport Communication Recreation Cultural Services Education Rent Utilities Other Services Retail US$ 342 Billion (59%) Non Retail US$ 238 Billion (41%) Urban (5,100 towns) US$ 154 Billion (45%) Modern retail – US$ 12 billion 8% of urban retail spends Rural (6,27,000 villages) US$ 188 Billion (55%) Modern retail Negligible Source: Central Statistical Organization (CS0) and Technopak Analysis Conversion rate: 1 US$ = 40.86 Rs.

7. About US $530 Billion Retail Market by 2012 GDP* US$ 1,450 billion Private Consumption US$ 870 Billion (60%) Public Spending and Capital Formation US$ 580 Billion (40%) Retail US$ 530 Billion (61%) Non Retail US$ 340 Billion (39%) Urban US$ 252 Billion (47.5%) Modern retail – US$ 78 billion 31% of urban retail spends Rural US$ 278 Billion (52.5%) Modern retail – US$ 9 billion 3% of rural retail spends *All figures are in nominal terms after taking into account inflation Source: Technopak Analysis

8. Which Makes Indian Retail an Attractive Market India tops the Global Retail Development Index

9. Modern Retail – Organized Channels • The share of organized retail is less than 3% of the total retail market • The size of modern retail is about US$ 8 Billion and has grown by 35% CAGR in last five years

10. .. but Rapid Transformation is Anticipated And may reach a share of 25% by 2017

11. Evolution of Indian retail Modern Formats/ International Historic/Rural Reach Traditional/Pervasive Reach Government Supported Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls PDS Outlets Khadi Stores Cooperatives Convenience Stores Mom and Pop/Kiranas Weekly Markets Village Fairs Melas Source of Entertainment Availability/ Low Costs / Distribution Shopping Experience/Efficiency Neighborhood Stores/Convenience

12. Samsung laundry machine McDonalds Maharaja Mac Nokia 1100 Memory backup to compensate for frequent power shortage Head & Shoulders Samsung microwaves Chicken hamburger to reach segments that do not eat beef Anti dust keypad for dirty roads, anti slip grip for the heat and flash-light in case of electricity shortage 10 milli lt. sachet for less than 5 cents increased the shampoo buying population dramatically Indian menus with singe touch Adaptation to Local Market – Road for Success Price, concern and typical Indian features are some examples Source: McKinsey Quaterly, winning the Indian consumer, 2005

13. Recent Trends Recent changes: Traditionally three factors have plagued the retail industry: • Experimentation with formats: Retailing in India is still evolving and the sector is witnessing a series of experiments across the country with new formats being tested out. Ex. Quasi-mall, sub-urban discount stores, Cash and carry etc. • Store design : Biggest challenge for organized retailing to create a “customer-pull” environment that increases the amount of impulse shopping. Research shows that the chances of senses dictating sales are upto 10-15%. Retail chains like MusicWorld, Baristas, Piramyd and Globus are laying major emphasis & investing heavily in store design. • Emergence of discount stores: They are expected to spearhead the organized retailing revolution. Stores trying to emulate the model of Wal-Mart. Ex. Big Bazaar, Bombay Bazaar, RPGs. • Unorganized retailing is getting organized: To meet the challenges of organized retailing such as large Cineplex's, and malls, which are backed by the corporate house such as 'Ansals' and 'PVR‘ the unorganized sector is getting organized. 25 stores in Delhi under the banner of Provision mart are joining hands to combine monthly buying. Bombay Bazaar and Efoodmart formed which are aggregations of Kiranas. • Unorganized: Vast majority of the twelve million stores are small "father and son" outlets • Fragmented: Mostly small individually owned businesses, average size of outlet equals 50 s.q. ft. Though India has the highest number of retail outlets per capita in the world, the retail space per capita at 2 s.q. ft per person is amongst the lowest. • Rural bias: Nearly two thirds of the stores are located in rural areas. Rural retail industry has typically two forms: "Haats" and “Melas". Haats are the weekly markets : serve groups of 10-50 villages and sell day-to-day necessities. Melas are larger in size and more sophisticated in terms of the goods sold (like TVs)

14. Recent Trends …..

15. Ludhiana New Delhi Lucknow Varanasi Patna Jaipur Kanpur Ahamabad Indore Vadodara Bhopal Kolkata Nagpur Surat Pune Visakhapatnam Hyderabad Mumbai Bangalore Chennai Above 10 Mn inhabitants Above 4 Mn inhabitants Kochin Above 2 Mn inhabitants Coimbatore Above 1 Mn inhabitants Madurai Retail Market not limited to metros but widely across India • The classic ”skimming” strategy in the metros is not longer sufficient • 100 cities strategy • Over 250 large size shopping malls are currently under construction • Leading cities 2030 are forecasted to be • Mumbai • New Delhi • Chandigarh

16. Drivers for Indian Retail High Income Opportunities Changing Attitude International Exposure Necessities to Lifestyle Market & Government • Service Sector: creating new jobs. • Working Population in 2010 will 70% • IT Industry: increasing professional opportunities • Rising Salary levels • MNCs entering India and homegrown companies going global • International travel • Exposure to global trends • Highest Growth in outbound tourists in the world • From Save to Spend • High disposable income family structures on a rise • Nuclear Families • DINKS (Double Income No Kids) • Multi income families • Shift of expense basket from basics to lifestyle products • Increased spend on Apparel, personal care, entertainment • Easy Bank credit boosts retail • Easing out on Import barriers, Government sponsorship taking shape (FDI Policy, Tax and Duty structure, Subsidies) • Fluid retail Segments • M-Commerce & e-Commerce boosts retail Consumption expenditure is 60 % of India’s GDP Customer value drivers are continuing to fragment as a result of changing demographics & value systems

17. Global Heavyweights in Indian Retailing

18. 12 Departmental stores Convenience stores Super markets Category killers Hyper markets Format Definition Key categories retailed Typical size Sq.ft. Example Formats Description • A large superstore, combining a supermarket and departmental store, offering full lines of grocery and general merchandise all under one roof • Food, groceries, apparel, furnishings, consumer durables 15,000-100,000 • Big Bazaar, Hypercity, Spencer, Star India Bazaar, Vishal Megamart • A large self service outlet offering food and household goods • Food, groceries, medicines 3,000-15,000 • FoodWorld, Trinethra, Subshiksha, Food baazar • In&Out, Trinethra, Subhiksha, traditional stores • Small size, easily accessible stores offering a quick shopping, fast check out experience and extended working hours • Food, groceries, medicines 500-2,000 • A large self service outlet offering a variety of merchandise • Apparel, Jewellery, watches, fashion accessories, footwear, furniture, furnishings 10,000-50,000 • Shopper’s Stop, Lifestyle, Pantaloon, Westside • Large speciality stores focussed on one or a few categories of merchandise, offering a wide selection at low prices • Electronics, office supplies, apparel 20,000-100,000 • Best Buy – Circuit City, Staples

19. 12 Warehouse clubs Multibrand speciality stores Single brand outlets Format Definition (Contd.) Key categories retailed • Typical size Sq.ft. Formats Description Example • Warehouse style large stores, offering goods in bulk at discount prices to members • Food, groceries • 100,000 + • Metro cash and carry, Costco, Sam’s Club • Retail outlet offering products of a single brand • Apparel, footwear, tyres, food services, furniture • 1,000-5,000 • Nike, Adidas, Colourplus, McDonalds, Gautier, Gucci, TBZ • Retail outlet offering multiple branded products belonging to a single category class • Footwear, apparel, electronics, books • 1,000-20,000 • Planet Sports, Planet Fashion, Crosswords

20. Organizing Retail in India-Challenges • Heterogeneous market • Product offerings in different stores across the country will be very different • No standard mode of operation across formats • Market not mature (has to be validated) • Infrastructure will bring about logistical challenges • Though, improvements in road networks, power supply are underway • Trained employees with understanding of retail business are inadequate compared to the needs of organized retail • Barriers to Entry • High taxes, bureaucratic clearance process and labour laws • High cost of real estate • though over 600 malls are to come up all over the country by the next 4 years • Indian retailers are deeply entrenched, are expanding and building on logistics and technology initiatives Retail Challenges

21. At ground level …. • Complex Processes - Multiple MRP, Deals & Promotions, Forecasting & Replenishment, Lean supply chain – JIT inventory, flow through warehouse • Evolving processes in Supply chain & merchandising • Global Best Practices not adopted Processes • High disposable income • Changing consumer preferences • 28 states, 100+ religion, 250+ festivals Consumer • Supply chain not reliable. Cold storage infrastructure evolving • Outsourced transportation • Low level automation in warehouses Infrastructure • Little or no collaboration between vendor & retailer • Low fill rates from vendors • Highly localized assortments leading to relationship with multiple vendors • Complex trading contracts and off invoice discounts Supplier/ Vendor • Multiplicity of disparate Systems & Data Formats • No architecture roadmap • Base ERP and home grown POS solutions. Low investments in store systems • No investments in planning & optimization technologies Current IT

22. The Way Ahead • India is amongst the least saturated of all major global markets in terms of penetration of modern retailing formats • Many strong regional and national players emerging across formats and product categories • Most of these players are now gearing up to expand rapidly after having gone through their respective learning curves • Real Estate Developers are also moving fast through the learning curve to provide qualitative environment for the consumers • The Shopping Mall formats are fast evolving • Partnering among Brands, retailers, franchisees, investors and malls • Improved Infrastructure In view of a compressed evolution cycle, retailers need to simultaneously address issues of speed, Execution and efficiency

23. Thank You