A Comparative Study of Retailing in India Essay

BACKGROUNDAccording to AT Kearney, Indias sell industry comprises US$ 435 one million million million. It entails only 6 per cent of itself as organised sell segment as of 2010, according to Booz and Co (India) Pvt Ltd. Hence, on that point is a great potential to be explored by ho custom servant and inter populationalistic players, especially subsequently Cabinets decision to allow up to 51% conflicting direct enthronement (FDI) in multi- provoker sell sphere of influence and 100% FDI in single- place sell. (Why India is a astronomical grocery refer scalawag 23, Annexure) The Business Monitor International (BMI) India retail Report for the fourth- prat of 2011 forecasts that the total retail sales give grow from US$ 411.28 billion in 2011 to US$ 804.06 billion by 2015. The report has underlined factors like economic growth, population amplification, change magnitude wealth of individuals and rapid construction of unionised retail infrastructure as major drivers for the optimistic forecast figures. (Refer Annexure, fig 2) According to a question report named Retail empyrean in India by Research and Markets, Indian retail sector accounts for 22 per cent of the countrys thoroughgoing(a) domestic product (GDP) and contributes to 8 per cent of the total employment.FDI in single-brand retail currently is 0.03% of cumulative FDI of round $149 billion from April 2000 to kinsfolk 2011. The announcement is expect to generate 10 million jobs oer three yrs, without impacting milder and domestic retailers. FDI in retail for require provide the market-gardening community a untried support by investing in swell farming practices and providing them with fall a part scathes. The planetary players pull up stakes go a sophisticated front-end that ordain boost investment in infrastructure by retail players, third-party supply- kitchen range companies and the g all everyplacenment. This pass on ameliorate efficiencies in the supply strand, cut wastage, increase efficiency and bring d decl be consumer prices.India has been ranked as the fourth most attractive nation for retail investment among 30 emerging markets by the US-based spherical steering consulting house, A T Kearney, in its Global Retail Development advocator (GRDI) 2011. Indias MGR (Mass Grocery Retail) sector re mains dominated by minor(ip) traditional retail outlets. solely four delineate sore-fangled formats (supermarkets, hypermarkets, gizmo and discount chisel ins) atomic crook 18 already present within Indias MGR market but these encloses ar largely lastd by a handful of local anesthetic retailers. Structure of Indias MGR market till 2010 (Estimated number of Outlets fig3, Sales by Format fig4) is given in Annexure. Col takeative model for land-wide products peg ventures (JVs) be emerging as the preferred model for new entrants, wherein unlike players leverage the knowledge of the local player and con nerve center on key is sues such(prenominal)(prenominal) as eccentric, pricing, promotions and brand management. Key examples include the Bharti Groups JV with Wal-Mart for retail in the Indian market.MGR sales growth for 2011 = +19.7% mix annual average growth rate to 2015 = +17.6% (Refer Annexure soma 5) Increased video to Western consumption habits has fuelled consumerism in developed and emerging Asia. Wealthy consumers in major towns and cities turn to modern formats in search of the convenience and musical note that they now desire and arse increasingly afford. A address of international retailers argon planning to enter and expand their trading operations in India after the reforms introduced in the FDI form _or_ system of g everyplacenment in retail sector, like Walmart, United colourise of Benetton (UCB), Da Milano.According to a report by research firm CB Ric potent Ellis India, over 6 million squ be feet of retail mall space was added across India in the initial six months of 2011 (Refer Annexure fig 6) primarily payable to aggressive expansion by organized retailers. The potential cities which argon good for entering be given in Annexure Fig 7. Cumulative strange direct investment (FDI) inflows in single-brand retail trading during April 2000 to June 2011 s overlyd at US$ 69.26 million, according to the Department of Industrial Policy and Promotion (DIPP). There are a lot of entry modes to enter a country, here India. (Refer Annexure Fig 8) And also refer to the growth trend that was observed quarterly in India, last year. (Refer Annexure Fig 13)BHARTI-WALMARTIndia is a price sensitive market and indeed we departing be devising our  dodging for her very carefullyretail is like a game of three dimensional chess where we operate as a local, regional and global player, so depending on the need of the market we shall change our format and change. John B Menzer, President and CEO, Wal-Mart International. 5050 go venture In India, Wal-Mart has a 50 50 joint venture with Bharti Enterprises in the in large quantities cash-and-carry segment, since 2007, under the brand Best Price Modern Wholesale. Total retail units as of October 31, 2011 9Best Price Modern Wholesale 9Associates 3,372These stores bemuse been exposed in Amritsar, Zirakpur (Near Chandigarh), Jalandhar, Kota, Bhopal, Ludhiana, Raipur and Indore. The JV in India expects to open 10 to 12 new Best Price Modern Wholesale stores and employ approximately 3,000 4,000 raft by end of 2011. On 16 Sept11, it opened its first Best Price Modern Wholesale cash-and-carry store at Nidamanuru, National Highway-5 in Vijayawada, Andhra Pradesh. New outlet will also leave a Mera Kirana program sharing best practices such as versatile aspects of using low-cost modern techniques and processes such as assortment planning, layout and fixtures, displays, backroom, licenses, fail-safe fare handling, client retention and value added services with wasted and cleverness retailers. O n 30 Sept11, it opened a new store format, Easyday Hyper, at Magnet Malls, Bhandup, Mumbai.Currently, the smart set has 140 easyday stores, 13 easyday Market outlets and 1 easyday Hyper store. Advantage of Wholesale Cash-and-Carry These benefit retailers as it is a is a one-stop shop that meets the day-to-day needs of restaurant owners, hoteliers, caterers, fruit and vegetable resellers, kiranas, early(a) retail store owners, shoess and institutions. More than 90 part of these goods and services are being sourced locally on that pointby serveing keep cost to a minimum, adding to the growth of the local economy and creating job opportunities, with the cash and carry store directly employing more than 200 local battalion.A typical wholesale cash-and carry facility will standpoint between 50,000 and 100,000 square feet. The joint venture works with the existing supply chain infrastructure to help make it more efficient, thereby maximizing value for farmers and manufacturer s and retailers. The supply chain operation supports farmers and nice manufacturers who fork over limited infrastructure and dispersion strength and help minimize wastage, particularly of fresh diets and vegetables. An efficient supply chain can play an important role in altering farmers and small manufacturers into in(predicate) entrepreneurs. Technical Collaboration Walmart provides certain technical support to Bharti Retail for its front-end retail venture where Bharti Retail requires critical retail technology and technical know-how. Walmarts rule Farm Program Multinational retail giant, Wal-Marts Direct Farm Program in India is a partnership with 110 small and marginal farmers near Ludhiana in Punjab where it encourages cultivation of safe, high-quality, seasonal vegetables. Farmers are well-advised at every stage of cultivation by written report agronomists.Farmers image active nursery management, transplanting, nutrient management, as well as reaping and post-harv est practices. Sourcing from India Walmart has been sourcing a variety of products from suppliers in India for more than 20 years. Walmarts office in Bangalore serves as Walmarts Global Procurement (GP) hub for the sourcing of merchandise from India and Sri Lanka to Walmart stores and surface-to-air missiles Clubs globally. GP India also manages Global Procurement from Sri Lanka. Major categories sourced from India include home textiles (including towels, shower curtains, bath mats, etc.), apparel (including woven, knitwear and leather footwear), leather accessories, graceful jewelry and house wares (like fine dining ware, home dcor, etc). The main categories sourced from Sri Lanka are apparel, textiles and gifts. Launch of its 1st store in India, 2009 The reason for Wal-Marts entry in India was clear The Indian middle class, on which it had been running(a) for most both years.Mom-and-pop stores (or the Kiryana stores) and traditional distribution networks dominated the Indian retail market. Wal-Marts first outlet was set to launch in the metropolis of Amritsar, Punjab in North India. The first store air-conditioned and built over 50,000 sq. ft. was on the outskirts of the city, Amritsar. The store employed 200 locals and was likely create quintuple hundred indirect jobs. In the first few weeks itself, the company had managed to sign on close to 35,000 members. Training Center Bharti Wal-Mart has opened a training nubble in Delhi to bridge the gap between demand and supply of good man king in modern retail. It will provide free retail sector-focussed vocational training to candidates.A memorandum of agreement (MoA) was signed in this regard on July 2211 between Bharti Wal-Mart and the Delhi disposals Department of Training and Technical Education. Bharti-Walmart plans to invest over USD 15 mn in Andhra Pradesh this year and impact lives of 25,000 women through multiple initiatives by 2016, it has already created more than 2,000 job-ready women in 3 years through Bharti Walmart Training Centres. Walmart Labs in Bangalore In addition to its R&D centre in the Silicon Valley, Wal-Mart plans to set up a nonher facility in Bangalore, India (expected to be set up by Dec 2011) with nigh 100 developers to work on technologies and solutions for Wal-Marts global e-commerce business.UNITED COLORS OF BENETTONThe Benetton Group, with brands such as UCB, Sisley and Playlife, has a presence in 120 countries. It has network of slightly 6,000 stores. India has a local production of their collection too. Almost 100 per cent of the products are sourced from India. The product line remains uniform geographically. At present Benetton has over 425 franchised stores in India (since 1991) and the number is likely to double in five years. at present it is also focusing on smaller cities and towns given the growth in brand awareness and disposable income levels. Even if FDI in single brand retail is opened up, we will continue to operate like a wholesaler and follow the franchise route, Mr Mohanty (Benetton India MD) state. It has launched its first Concept store in Connaught Place.Stores are an important communication platform for Benetton as it is here that we character the depth of our brand offering to the customers. The launch of the new store strengthens Benettons presence in the Indian market. Global brands work everywhere. Consumers currently are very global as they are accepting products that have global appeal. In fact, it has always positioned itself as a colorful brand which has worked wonders for the Indian market. Also it focuses more on consumer experience like store standard pressure and window merchandising preferably than advertising.Almost 40% of our budget is fagged on that. However, it is now look at in-film placements as the next branding strategy. (It has already tied up with an upcoming John Abraham movie 1-800-Love.) It is looking forward to being clothing partners of programmes or event s, which are true to their product. Recently, this Italian casual wear brand opened an outlet at magneto Mall, Raipur. Spread over an area of 1,000 sq ft, the store stocks a range of garb and accessories for men and women. The retailer has a revenue-sharing model with the mall.DA MILANODa Milano, the international luxury brand with its range of agiotage leather goods and accessories is synonymous to precision, slyness and exclusivity. Da Milano imports 70% of its leather and accessories from Italy for its leather goods retailed in India. It has 2 take of the art company owned manufacturing units at Nalagarh in Himachal Pradesh equipped with the latest and most advanced machinery. They have a highly skilled workforce operating under the guidance of Italian technicians. They also have an sole(a) tannery near Chennai in TN where leather produced is benchmarked to the latest process technology. By September11, it has 32 signature Da Milano stores across the country. It tardily opened 5 flagship stores in Maharashtra. The brands presence can be seen in 10 cities Delhi, Gurgaon, Noida, Jaipur, Chandigarh, Mumbai, Pune, Hyderabad, Chennai and Kolkata.Recently it opened its showroom at Terminal 3 of Indira Gandhi International Airport in Delhi. The store is sprawled over 850sq.ft and is embellished with all-glass frontage. The appealing optic merchandising of the store also includes an off white backdrop, wooden shelves, low-key green wall paper, illuminating marble flooring etc, and is done to inveigle passers-by and draw footfall. The luxury brand could soon be seen announcing the launch of two of its sub brands Rosso Brunello and Da Milano Home. While the former will offer premium hi fashion foot wears for men and women, the latter will be offering leather accessories for home and office. Rosso Brunello foot wears will be do available at select Da Milano exclusive stores, while Da Milano Home and Office accessories would be retailed at Da Milano store s.Well, a lot of scope is there in India as compared to other countries in the world as the organized retail penetration level is only around 5% as compared to 85% in USA, 80% in France and 20% in China. (Refer Annexure Fig 9)PROBLEMATIC SITUATION/DIFFICULTY FACED IN INTERNATIONAL OPERATIONSPrice issue In India the majority of retail outlets sell products at maximum retail price (MRP), which are administered by the government and printed on each item by manufacturers. Thus, there is marginal price competition among the various store formats. The arrival of International retailers, with broad sourcing networks, may eradicate the importance of government-imposed MRP, as these are likely to focus strongly on low prices as a competitive scratch and as a means of encouraging new consumers to try the modern concept. Poor Infrastructure The road infrastructure is poor and federal and asseverate tax laws are complex, which make cross-state transportation difficult. Indias transport net works/highways, inelegant infrastructure certainly need investment. Bharti has announced to invest INR 125bn in agriculture and supply chain. It will also invest on specific distribution and transportation storage solutions (ie refrigerated trucks and logistical initiatives, such as electronic product tracking).The relatively slow pace of MGR growth in India can be largely attributed to two key factors (1) massive income inequalities and (2) tough FDI regulations campaign displacement issue in India The entry of International retailers with efficient systems will destroy the traditional retail sector, making packs demand at minimum in these new retail stores. JOB losing worry If we assume 40 mn adults in the retail sector, it would translate into around 160 mn dependents using a 14 dependance ratio. These people are unlikely suitable for other areas of work either. Thus, there is a need to enact new laws to check the prolific expansion of the new foreign malls and hypermarkets, like China, Malaysia and Thailand. (Refer Annexure Fig 12 to see the Asia peace-loving Retail Sales by % share) Change in Retail FDI policy On November 24th the coalition government, led by the Congress party, said that in cities of over 1m folk, foreign firms could now own 51% of multi-brand retailers, such as supermarkets (up from zero), and 100% of single-brand chains (up from 51%).Multi-brand foreign chains, such as Walmart and Tesco, must operate as joint ventures, of which they may now own up to 51%, and may operate only in cities of 1m people or more. The new reform is timely. Growth has dipped under 7%. The rupee is weak, investors are nervous. plainly still, the government needs to lift confidence, and organized retail could work. (Refer to Annexure Fig 10 to see the Indian economic military action showe the nominal GDP and GDP per capita.) Political issues The FDI reform is too controversial to be enacted. The main opposition party, the BJP, which enjoys the suppo rt of millions of stallholders, is doing its best to cilium up anger. Many Indians feel an emotional attachment to little kirana stores, and scrub that foreign invaders will destroy them.Indian states are not get to follow the FDI reform. Many may refuse to liberalize foreign ownership on their territory. Standard Chartered Bank, reckons that of 53 cities with over 1m people, 28 are run by politicians who say they will block the reform. Indias leftist parties had called for a nationwide strike on Dec. 1 in solidarity with the fusion of All India Traders, who are among the most vocal opponents of full FDI in retail. The BJP attractor Uma Bharti publicly threatened to set fire to any Walmart that opens. rupture Market The retail shops are very fragmented with only very few supermarkets and no dominant chain. Farming is also fragmented. A woebegone legal system makes it hard to enforce contracts. Under the latest FDI reform, foreign-controlled shops will have to buy a chunk of their processed and manufactured goods from small firms, which may add to their costs. High Land prices in India Foreign retailers will have to find inexpensive land in packed and pricey cities. Western luxury-goods firms may be able to tolerate extortionate rents for exchange locations.Some may prosper with a few out-of-town stores that people visit infrequently, spending lots. But general retailers need both dirt cheap land and proximity to their customersnot an easy mix. Peoples habits Indians are in the habit of shopping for their fruits and vegetables almost every day which get the customer into the shop every day, and chances are shell buy something extra. Building a Walmart-style supply chain of fruits and vegetables requires a lot of investment in change the productivity and quality of farmers. E.g. showing a tomato farmer how to improve his yields by using wooden stakes for his plants. That farmer doesnt have to sell his tomatoes to Walmart, but when he sees that he c an get a better price, he often does. To woo farmers away from the system they are used to selling produce at the local mandi, or market, at a price dictated by traders Walmart has set itself a orient of increasing farmers incomes by 20% over five years.Farmers Income By law, farmers are required to sell their produce only to authorize mandis and have to pay the mandi taxes. (Walmart has to pay the mandi tax even when farmers sell to them.) They go for hours to get here, and then take whatever price the wholesale emptor is willing to give. The buyers dont inspect the produce and offer better prices for better quality they just sell the 100-kg sacks of vegetables to another set of middlemen, who break it into smaller lots that eventually find their way to vegetable vendors and small retailers. By the time it reaches the consumer, that produce will have been marked up by three to four times or more, but most all of that goes to the middlemen, not the farmer. Meanwhile, abou t 30% of the produce also spoils on the way for lack of cold storage, contributing to Indias soaring food inflation. Distribution issue remains a major challenge to retail expansion. Indias infrastructure is a lot inadequate.A 500km road trip can take as much as 24 hours, owing to poor road conditions, congestion and toll booths. Preference for Kirana/local retailers (cheap price offered) According to ASSOCHAMs mickle 2010, in which it interviewed 5000 shoppers in various cities in India, kirana stores (mom and pop stores) and local retailers were the preferred destination for shoppers as compared to shopping malls. The survey found that goods were less expensive (as much as 25%) in local kirana stores as compared to big shopping malls with more variety and affordable options with sustainable quality at a negotiable price (reduced margins) Walmarts strict union policy The companys clearly delineate anti-union policy aiming at preventing its work force from gaining collective bar gaining power can result in increased wages.Low bang costs Small retailers in India already operate with such low overhead costs (by relying on informal labor and making minimal investment in any technology, even refrigeration) that its hard for Walmart to compete with them. (Indias traders have, however, invested in their relationships with state and local politicians, who count on their support around election time.) Elsewhere, Walmart may have pioneered the use of low-cost retail labor in India, the cost of labor in retail is already about as low as it can get.STRATEGY ADOPTED TO adjourn THE ISSUEIssuing Loyalty cards Keeping customers hardcore is a problem retailers often grapple with. Over the last decade, Indian companies that are focusing on acquiring and retaining customers have become aggressive about giving out loyalty cards. As a result, 42 percent of Indians in the SEC A, B and C categories are now part of at least one loyalty program in Indias $4 billion-a-year loyal ty market. (This figure includes the market for gifts, which a lot of companies use as a surrogate for loyalty programs.) Loyalty is seen as the number one tool that allows retailers to access data on customer gustatory perceptions and preferences. Pearson conducted an extensive customer research through Colloquy, its research arm only 20 percent of Indians in the SEC A, B and C categories are loyal to a particular brand. Offer a better deal and they are more than willing to shift.Improving Infrastructure Tesco is planning to work with Tatas sense datum Bazaar hypermarket business on a franchise basis, providing expertness and technical support in return for a fee to the fast-expanding network. Star Bazaar stores, potentially meaning that Tesco-branded private-label goods could appear in consumer retail outlets in India. It provides employment for some 3,000 local workers at its global service centre in Bangalore. More Partnership Wal-Mart is also considering a partnership with In dian counterpart Future Group to strengthen its presence in India. Also, Walmart is on an expanding spree in India and wants to cover maximum areas in India, even the intragroup regions.Recently, it opened a new store format, easyday Hyper, at Magnet Malls, Bhandup, Mumbai. This is Bharti Retails first store in West India. Spread over 60,000 sq.ft., the outlet stocks over 20,000 products displaying 475 new items, including personal care products, stationery, household articles, hosepipe items and daily-need groceries. Introduction of Innovative ideas Walmart is also introducing innovating ideas to contrastingiate it from other retailers, like the recently opened store also has a section called Baby World. Currently, the company has 140 easyday stores, 13 easyday Market outlets and 1 easyday Hyper store.Cluster approach strategy Walmart follows a cluster approach strategy and initially largely pore on Punjab, although it opened stores in other places also. It has covered the four big markets (in Punjab) already. Price settling Government of India should introduce the concept for the organized retail by setting a minimum price for a commodity, below which a retail store cannot sale the product. This should be done to invalidate the occurrence of monopoly of a retailer in the country. Personalized Offer to guest The current retailers in India should take an advantage of the prior knowledge of the customer requirement and customer nature in India. They should provide customized deals and service to them, so that they may retain the old customers even on the opening up of new international retail stores whose service is not personalized.LESSONS LEARNTClearly, once the right caps on foreign investment are lifted, the India MGR sector will avow tremendous flows of investment from global retailers, which leads to our projection of 155.6% in MGR sales to 2015. Its retail market is forecast to nearly double to $850 billion by 2020. (Refer to Annexure Fig 11 to see the forecast for 2020 in terms of sales in organized and unorganized retail market.) Also, when a retailer (say Walmart) enters a new market, a lot depends on the kind of a partner it has. As Bharti itself has ambitions to be a major retail powerhouse in India, therefore there is a strategic conflict between their interests. As, sooner or later India will permit foreign retailers to have direct candor ownership in India, then what will Walmart be left property? Bharti has retail ambitions, thus it will want to buy Walmarts shares, rather than sell. Bharti-Walmart stores are branded BestPrice, and not with Walmarts name.Thus, Walmart could have thought of India as a portfolio of regional markets and work with smaller regional partners. Its hard for the local kiryana stores, etc. to have much bargaining power or have national ambitions. They would have been happy to brand them as Walmart and when regulations change, Walmart would be able to buy them out. Walmart India probabl y will invest in a joint venture with Kishore Biyani-led Future Group soon. The report is not substantiate yet. On Tuesday (March 2911), a leading business daily in India reported that senior executives of Future Group and Walmart had met at least five times in four months, raising possibilities of an alliance. More important, the debate over Walmarts effect on retail employment misses a large point. In India, the majority of the population is employed in agriculture, and Indian farmers stand to gain a lot from greater investment by anyone foreign or domestic in the supply chain that brings food from the field to the consumer. CRISIL, a research firm, reckons the reform could attract up to $3 billion of foreign investment over five yearswelcome, but not nearly enough to fund Indias current-account deficit or transform the industry.Indias consumer-goods firms, among its most profitable, have thrived in the era of backward sell and supply chains, but are betting on gradual ch ange. The biggest, Hindustan Unilever, has seconded stave to stores in America and Britain to learn how they work. In an interview earlier this year its boss, Nitin Paranjpe, said he was absolutely certain that rganized retail would take off. But he reckoned it would take a decade to capture a quarter of the market. Entering a market as big and complex as Indias is a big bet, even for experienced international retailers. achiever is by no means guaranteed citing example of China, where Tescos Chinese operations are only breaking even though they have been in the country for seven years. Walmart is doing better, but this was helped by its takeover of Trustmart, a minute supermarket.Carrefour and Auchan, two French supermarket chains, are doing best, because they adapted more than their rivals to the taste of the Chinese and their shopping preferences, says Ben Cavender at China Market Research in Shanghai. Carrefour, for instance, introduced what is known as wet markets in most of i ts outlets open food markets that sell live animals. To be successful in India, Walmart, Carrefour and Tesco will need to give their local managers a lot of autonomy to adapt their stores. India boasts more than 20 official languages, three major religions and many, very different culinary traditions.Big Bazaar, one of the few Indian hypermarket chains, shows how far such adaptation will have to go. Instead of copying the narrow aisles in Western stores, designed for individual shoppers with carts, the firm has packed its stores with clusters through which shoppers have to navigate. This recreates the organised chaos Indians know from shopping in real bazaars bumping into people, chatting and eating. All these international retail shops offer a wider variety and larger standard of some items, but lacked the personal touch. They do not have the quality of personalized touch that a normal Kiryana store offers to its customers, thus it will take a long way to establish the retail mark et in India, but the wait is for the final say by the government of India.REFERENCEwww.walmartstores.comhttp//www.ey.com/IN/en/Newsroom/News-releases/Published-editorialFDI-in-retailMNC-retailers-to-select-partners-with-suitable-capabilitiesFDI in Indias Retail Sector More Bad than Good? By Mohan Guruswamy, Kamal Sharma, Jeevan Prakash Mohanty, Thomas J. Korahhttp//business.in.com/article/magazine-extra/walmarts-strategy-through-the-world/6042/1ixzz1fpdJwzydwww.indiaretailing.comhttp//business.in.com/article/web-special/loyalty-networks-poised-to-enter-indian-market/30972/1ixzz1fpikaw00 http//www.ibef.org/download/Retail_270111.pdfhttp//retail.franchiseindia.com/interviews/Debutant/Bagging-profits-59/ Issue 37 September 2011 http//www.dnb.co.in/Ind_cursorpdf/Industry_Cursor_September_2011.pdf http//www.ramms.co.in/admin/ finishing/source/files/news/39_RRN-Sept%202011.pdf FDI in retail MNC retailers to select partners with suitable capabilities frugal Times By Paresh Parekh, Tax Pa rtner, Ernst & Young