Organized Retail and FDI

Organized Retail and FDI Knowledge Session 1

What is organized retail ? • Branded stores (Usually Part of a chain) • Modern Infrastructure and Technology • Self Service • Types of Organized retail • Supermarkets & Convenience stores • Department Stores • Hypermarkets • Cash and carry • Specialty stores • Single brand Exclusive stores • Discount Stores/Factory outlets

Retail in India • Organized retail is 6% but growing fast • Global range: • 2% in Pakistan • 35% Brazil • 55% Malaysia • 85% USA • Small Unorganized family run retail stores

Organized Retail in India • Future group • Pantaloon, Big Bazaar, food bazaar, eZone etc • Reliance • Reliance Fresh, Trends, Jewels etc • RPG Spencer's • Aditya Birla More • Cash and Carry • Metro AG, Bharti Wal-Mart

Retail and India • Food and Groceries – 60% • Clothing and Footwear – 9-10% • Furniture and Appliances – 5-6%

Indian Retail Key Issues • Low sales per outlet • Rs 1000 – 1200 per day Rural • Rs 7000 – Rs 8000 per day Urban • Low productivity of Labor • 6% of USA levels • Long Supply chain • 5 to 6 intermediaries Vs 2-3 in USA/Europe • Inefficient supply chain • Poor infrastructure – Roads, Storage etc • Low percentage of processed food

Indian Retail Key Issues • Over regulated industry • Antiquated APMC restricts farmers choice • Multiple taxes • State VAT, Central CST, Octroi etc • Archaic labor laws • Regulate shift timings, holidays, contract labor etc • High Real estate costs • Cost of real estate in Cities is very high

Organized Retail in India • High potential • Urbanization and growth of middle class • Increase in % of working women • Exposure to modern retail experience (Malls) • Increased demand for branded/Processed food • High growth in turnover • Still on learning curve • Supply chain, Technology, Mgt practices • Real estate cost, Manpower quality, theft etc • Mounting losses

FDI in retail • Current scenario • 100% FDI in Cash and Carry • 51% in Single brand stores • Proposal • to allow 100% in Single brand • and 51% in multi brand retail • Current Status: on Hold

Potential impact • Infusion of cash for cash Intensive business • Infusion of technology and practices • Boost to supply chain and logistics • Cold storages and processing units • Will require change in APMC • Partnership with Indian players • Local knowledge and global expertise • Boost to Indian Suppliers • 30% sourcing from Indian SME • Sourcing from India for global operations

Potential impact • Impact on urban small retailers • Loss of business and potential closure • FDI allowed in 51 cities • Farm to fork • Better prices for farmers, consumers • Reduced losses in transport & Storage • Contract farming • Technology sharing with farmers

Is it a good thing? • For Farmers • Should get better prices • Impact may be limited to Medium/Large farms • Better seeds, technology and farm practices • Multiple options for farmers • Loss of bio diversity • For Small retailers • Loss of business, but most will survive • Impact high in proximity to Modern stores • Will have to adapt and might need support

Is it a good thing? • For consumers • Better prices, larger variety, Better shopping exp • Convenience for Working families • Would increase consumption expenditure • Purchase of processed food, impulse items • For Manufacturers • 30% rule would benefit SME’s • Large manufacturer’s margins squeezed

Is it a good thing? • Employment • Loss of unorganized sector jobs at small retail • Creation of organized sector jobs • Net Growth in employment if Consumption Inc • Additional jobs in supply chain/Food processing • Government • Higher tax revenues through organized retail • May boost agri exports from India

Conditions Apply • APMC act needs to be amended • GST would simplify taxation • Investment in Roads/infra required etc • It is long term game • Don’t expect results in 2-3 years • Wal-Mart and co will go slow at first • Politics may still derail the plan • Opposition states and Some Allies oppose • The JV’s would not operate in such states

Organized Retail and FDI