| Retailing
in India
-
16 Mar 2004
India
has sometimes been called a nation of shopkeepers. This epithet
has its roots in the huge number of retail enterprises in
India, which totalled over 12 million in 2003. About 78% of
these are small family businesses utilising only household
labour. Even among retail enterprises that employ hired workers,
the bulk of them use less than three workers.
India's
retail sector appears underdeveloped not only by the standards
of industrialised countries but also in comparison with several
other emerging markets in Asia and elsewhere. There are only
14 companies that run department stores and two with hypermarkets.
While the number of businesses operating supermarkets is higher
(385 in 2003), most of these had only one outlet. The number
of companies with supermarket chains was less than 10.
Retail
sales
Retail
sales, which amounted to about Rs7,400 billion in 2002, expanded
at an average annual rate of 7% during 1999-2002. With the
upturn in economic growth during 2003, retail sales are also
expected to expand at a higher pace of nearly 10%.
In
a developing country like India, a large chunk of consumer
expenditure is on basic necessities, especially food related
items. Hence, it is not surprising that food, beverages and
tobacco accounted for as much as 71% of retail sales in 2002.
The remaining 29% of retail sales are non-food items. The
share of food related items fell over the review period, down
from 73% in 1999. This is to be expected as, with income growth,
Indians, like consumers elsewhere, spent more on non-food
items compared with food products.
Sales
through supermarkets and department stores are small compared
with overall retail sales. However, their sales grew much
more rapidly (about 30% per year during the review period).
As a result, their sales almost tripled during this time.
This high acceleration in sales through modern retail formats
is expected to continue during the next few years with the
rapid growth in numbers of such outlets in response to consumer
demand and business potential.
Government
policy
There
has been vigorous opposition to foreign direct investment
(FDI) in retailing from small traders who fear that foreign
retailing companies would take away their business, lead to
the closure of many small trading businesses and result in
considerable unemployment. Given the political clout of the
small trading community, because of their enormous numbers,
the government has barred FDI in retailing since 1997. Hence,
at present, foreign retailers can only enter the retailing
sector through franchising agreements.
Organisational
characteristics
Given
the traditional and underdeveloped state of the Indian retail
sector, the organisational characteristics of retail enterprises
are rudimentary. Most of them belong to independent enterprises
in the form of small family businesses.
Cooperatives
have been present in India for several decades, spurred by
the encouragement given by the Indian Government, which viewed
the cooperative movement as an integral component of its erstwhile
socialist policies. However, since the 1990s, there has been
a reduction in government support for cooperatives. In 2002,
there were about 35,000 outlets run by cooperatives.
Economic
liberalisation, competition and foreign investment since the
1990s led to a proliferation of brands with both foreign and
Indian companies acquiring a strong brand equity for their
products. Hence, franchising emerged as a popular mode of
retailing. Sales of franchises grew at a rapid pace of 14%
per annum over the review period. In 2002, there were over
5,000 franchised outlets.
The
other major retailing organisation format is multiples, better
known as "chain stores" in India. In 2002, there
were about 1,800 chain stores. Among the various organisational
formats, sales of chain stores grew at the fastest pace, with
sales growth during the review period averaging 24% per year.
Food
retailers
There
are a large variety of retailers operating in the food retailing
sector. This is not surprising considering the enormous size
of the market for food. However, traditional types of retailers,
who operate small single outlet businesses mainly using family
labour, dominate this sector. In comparison, supermarkets
account for a minuscule proportion of food sales. This is
because of the strong competitive strengths that traditional
retailers possess. These include low operating costs and overheads,
low margins, proximity to customers, long opening hours, and
additional services to customers (such as home delivery).
Nevertheless, supermarket sales expanded at a much higher
rate than other retailers. This is because greater numbers
of higher income Indians prefer to shop at supermarkets because
of convenience, higher standards of hygiene and the attractive
ambience.
Health
and beauty products retailers
With
growth in incomes, Indians have been spending more on health
and beauty products. As in the case of other retailing sectors,
small single-outlet retailers also dominate sales of health
and beauty products. However, in recent years, a couple of
retail chains specialising in health & beauty products
have sprung up. At present, they account for only a tiny share
of sales of these products. However, as Indians spend more
on such products in future, their business will undoubtedly
expand substantially. There is also scope for entry of more
such chains.
Clothing
and footwear retailers
Numerous
clothing and footwear shops are to be found in Indian cities
and towns, especially in shopping centres and markets. These
are a mix of traditional and modern stores. Traditional outlets
are small and cramped with little emphasis on alluring displays.
They basically stock a limited range of cheap and popular
items. In contrast, modern clothing and footwear stores are
spacious with sample products attractively displayed in windows,
sometimes with mannequins. Just as in the case of food retailing,
there are also a huge number of retailers selling clothing
and footwear in makeshift stalls or on footpaths. Because
of their rock-bottom prices, which are much lower than prices
of branded products, they attract a large number of customers.
Home
furniture and household goods retailers
The
home furniture and household goods retailing sector in India
is dominated by small retailers. Despite the large size of
this market, very few modern and large retailers have established
specialised stores for these products. However, there is considerable
potential for the entry or expansion of specialised retail
chains and it is likely that this will happen during the next
few years.
Durable
goods retailers
The
entry of a large number of foreign consumer durable companies
into the Indian market during the 1990s after the government
liberalised its foreign investment and import policies transformed
this sector dramatically. A much larger variety of consumer
electronic items and household appliances became available
to the Indian customer. Competition among companies to sell
their brands provided a strong impetus to the growth for retailers
operating in this sector.
Leisure
and personal goods retailers
Rising
household incomes due to economic growth spurred consumer
expenditure on leisure and personal goods in India. There
are specialised retailers for each category of products in
this sector. A few retail chains also emerged particularly
in the retailing of books and music products. Another key
feature of this sector is the popularity of franchising arrangements
between established manufacturers and retailers. Alternative
selling channels
Sales
through most alternative selling channels are tiny or non-existent.
The only exception was direct selling, which grew rapidly
over the review period. The main reason for this was that
direct selling companies could easily attract a huge number
of "distributors", who constitute the key element
for the success of any direct selling company. Many of these
are unemployed Indian housewives who welcomed this opportunity
to earn additional income for their households. The low start-up
costs meant that they could easily start this business.
Forecast
total retail sales
Retail
sales (in real terms) are predicted to rise more rapidly than
consumer expenditure during 2003-2008. The forecast growth
in real retail sales during 2003-2008 is 8.3% per year (compared
with 7.1% for consumer expenditure). Inevitably, modernisation
of the Indian retail sector will be reflected in rapid growth
in sales of supermarkets, department stores and hypermarkets.
This is because of the growing preference of the affluent
and upper middle classes for shopping at these types of retail
stores, given the conveniences they offer such as shopping
ambience, variety and a single-point source for purchases.
Hence, sales from these large format stores are predicted
to expand at growth rates ranging from 24% to 49% per year
during 2003-2008. However, such rapid growth is from a small
base. Hence, they will continue to account for only a small
share of total retail sales in 2008. |
