Organized retail in India - a turning point in the history of Indian retail story

Abstract

Any discussion about the retail industry would be considered incomplete without the evaluation of the parameters which actually act as enablers for the industry that have fueled the growth in this sector in the last couple of years. When we considered the various parameters we found that these parameters are geared to sustain the growth in this sector in the next decade. India’s economic development because of growth in GDP, rise in forex, inflation under control and rising employment; all indicate the trust in this sector which account for 10 - 11% of the GDP. From studies it was proved that there is a direct correlation between a nation’s economic development and penetration of modern retailing formats. For e.g. in mature markets like US and UK, the same situation prevailed in 1970s as is being witnessed by India today. Even other countries like China, Thailand, Poland, Indonesia etc witnessed similar economic growth at the time they witnessed a retail boom in their country. The consuming class in the country is burgeoning and today’s youth has no guilt for consumption and is becoming upwardly mobile as his aspirations are going up. A positive dynamic in the Indian population is being seen and there has been huge growth in multiple categories like cars, mobiles, consumer durables, food-joints etc. Apart from this, other parameters under considerations like legal and political environment, investment and tax environment, financial environment, availability of real estate etc are all northward pointing. A study of the evolution of the retail industry showed the growth from the village fairs kind of model towards the modern hyper-markets/ super-markets etc. Basically now the industry is divided into the organized and unorganized sectors. The organized retail is characterized by businesses employing more than ten persons and includes the corporate-backed hypermarkets and retail chains. The organized sector accounts for just 2% of the trade and employs just five lakh persons. The latter refers to the traditional formats of low-cost retailing such as the local Kirana shops, owner-manned general stores, paan/beedi shops, convenience stores, handcart and pavement vendors, and employs over four crore people. We found India's retail sector to be highly fragmented, with about 11 million outlets operating in the country and only 4 per cent of them being larger than 500 sq ft in size. Category wise spending patterns still show a strong spend in the food and grocery section followed by transportation, household products and utilities. But the critical factor driving the growth in this industry would be an efficient supply chain to cope up with the challenges being posed by the entry of multiple players who employ innovative techniques to differentiate themselves from the competitors and create a liking amongst the customers. We came up with models which would help achieve a competitive advantage in this domain. FDI acts as a sweetener for this industry which would provide the required push for further growth. Also the Indian retail chains would get integrated with global supply chains because of FDI which would bring technology, quality standards and marketing thereby leading to new economic opportunities. These are being seen as a threat for the local players but from our study we evaluated the pros and cons of this move and discovered that actually they do not pose a realthreat to the local Kirana stores as these players operate in different domains. Kirana model is best suited for unplanned buying or buying which is done on day to day basis. For such kind of shopping, shoppers do not prefer to travel to a huge mall and invest so much of time and money. We even studied the Subhiksha model which is closer to Kirana style shops. Their success in the wake of the growth of huge retail chains proves the point further about the success of this kind of model.