‘Young spenders will drive India’s economy’

Sydney, Sep 28 (IANS) As the Indian consumer goes all out to seek new experiences from food and wine, installs an in-home spa and holidays in exotic destinations, modern retail is well on its way to becoming the key driver of the country’s economy, says Geoff Hiscock, an Australian author who studies the economies in Asia, especially India.Hiscock’s latest book “India’s Store Wars: Retail Revolution and the Battle for the Next 500 million Shoppers”, published by John Wiley & Sons, has just hit the stands in India while being available in Australia.

“Modern retail is well on the way to being the key driver of the Indian economy over the next decade because India’s consumer demand is simply unstoppable. For Australian suppliers of a whole range of goods and services, that represents a marvellous opportunity over the next few years,” Hiscock told IANS in an interview.

The book explores the changes in the demographic profile, tastes and spending habits of the Indian consumer, how younger Indians have more confidence and are willing to borrow to finance their consumption.

Despite the recent shocks caused by the sub-prime crisis in the US, young Indians are prepared to borrow money to buy a new two-wheeler or car, a digital TV, air-conditioner or even a house. They are also more aware of the sources of credit available to them, says Hiscock.

According to the latest research in the India Retail Report 2009, retail spending by Indian consumers is expected to rise from Rs.13.3 trillion (US$0.28 trillion) now to Rs.18.1 trillion ($0.38 trillion) by 2010.

“That is a huge increase in spending, and we can put it down to the fact that not only are incomes rising but younger people entering the workforce are more prepared to spend money than their parents were. The ’save’ mentality is being replaced by the ’spend’ mentality,” Hiscock told IANS.

For the author the most interesting aspect of India’s consumer boom has been the far faster growth in the modern retail sector – hypermarkets, supermarket chains, mini-marts, department stores and specialist shops in shopping malls – than the traditional retail sector made up of the 12 million ubiquitous grocery stores, wet markets, bazaars and weekly or monthly rural fairs.

Until only a few years ago, modern retail’s share of the total consumer spending was only 3-4 percent. But after growing at more than 40 percent in 2007, modern retail has a share of 5.9 percent and by 2010 could have a 13 percent share, according to a report prepared by Images F&R Research, and released at the 2008 India Retail Forum held in Mumbai last week.

The book provides rich insights on the intriguing subject of what makes India tick and the challenges facing the country’s retail sector.

For three years in a row (2005 to 2007), consulting firm A.T. Kearney has ranked India the top retail destination globally, ahead of Russia and China.

“However, the outlook is not all rosy. Apart from the global economic situation, there are some specific problems India must contend with. Perhaps the most obvious is the poor supply chain, which leads to terrible wastage rates in the shipping of fresh fruit, vegetables and dairy products. India desperately needs better logistics, including a comprehensive cold chain system in transportation,” the author warns.

“There is a lack of retail management skills and the information technology backbones necessary to run modern stores efficiently. Retailers face high real estate prices and extreme competition in the key metropolitan markets,” he adds.

The author also draws attention to the volatile political environment where market middlemen, small traders’ associations, grocers and street vendors, fearful for their economic future, are opposing big domestic retail newcomers such as Bharti Group, Reliance Industries and Aditya Birla Group, and foreign contenders such as Wal-Mart.

“But overall, I’m confident India’s modern retail sector can work through these issues, and the consumption boom will continue, thereby driving up India’s growth rate,” says the veteran journalist-turned author.

Hiscock’s other hugely successful books include “Asia’s Wealth Club” (1997), “Asia’s New Wealth Club” (2000) and “India’s Global Wealth Club: The stunning rise of its billionaires and the secrets of their success” (2007).

source:-www.thaindian.com

Organised retail players rethinking their strategy

NEW DELHI: Just over two-years ago, India’s largest private sector company , Reliance Industries (RIL), announced its grand entry into what remains one of the biggest, and largely unexplored markets anywhere in the world — the $350 billion Indian retail market.

RIL chairman Mukesh Ambani outlined the company’s ambitious plans to carve out a slice of this market — a Rs 25,000 crore investment by 2010 — with big and small Reliance shops across 1,500 cities, employing over a million people and an enviable logistics chain sewing up millions, from farm to fork.

Like with everything else, when Reliance pins its faith on any new idea, the world took notice and followed suit — from global retailing majors (Wal-Mart to Carrefour) and India’s other big corporations — Bharti Group, Aditya Birla Group, Mahindra & Mahindra and the Tatas. Cut to the Sept 2008. At a time when organised retailers should have been busy ramping up their operations and pouring cash to actualise that $350 billion promise, most are doing everything but that.

South India-based retail major Subhiksha is busy denying media reports of its selloff plans even as rumours of smaller retail chains looking for buyers flying thick and fast. India Inc’s heavyweights in the organised retail — Reliance , Birla, Tata — are back to drawing boards taking a relook at their strategies. Most seem to be trudging cautiously on their multi-faceted plans in the face of the continuous northbound march of property prices, soaring rates of interest and supply chain challenges that have exposed them to unbearable pressures.

It’s time for reality check for the Indian retail sector. Reliance Retail, with a target of 1,000 stores by the end of 2007, has managed only 735 outlets till July this year.

The company has booked a net loss of Rs 10.99 crore last year on reported revenues that hover around 1% of its total sales (Rs1.39 trillion). Similarly, Aditya Vikram Birla Group too fell short of its expansion target by two dozen outlets of ‘More’ , its retail chain brand.

Bharti Retail is also going slow. Grocery stores from retail biggies are reportedly registering losses, forcing them to rationalise their numbers. Adding to their woes are vendors and FMCG players refusing to supply, citing payment delays.

Grounded in reality

Let’s put things in perspective. Three years back, organised retail in India was expected to grow as fast as 38% annually. Then, the global management consultancy, AT Kearney had announced India’s arrival as the hottest retail destination.

Yet, Indian organised retail is still far from the target of becoming a $60 billion industry by 2011. It is growing at only about 30% per annum (contrary to the grandiose predictions) and stands at 4% of the $350 billion Indian retail industry.

Even Wal-Mart — the world’s biggest retailer — hopes to open its first cash-and-carry store only by 2009, a full three years after announcing its collaboration with Bharti retail. It is realising that it would take more than its legendary supply-chain management and margin-shaving acumen to bring a change in the country’s retail landscape.

Ditto for Tesco, UK’s biggest retailer that is yet to help out Tata Trent’s operations through a cash and carry initiative. In other words, despite attracting the world’s mightiest retailers, the India retail story doesn’t sound as attractive as it was supposed to be. Arvind Singhal, chairman, Technopak Advisors sees no reason to panic. “The current turbulence is not entirely unexpected,” he says.

“The sector is experiencing a steep learning curve and the situation should improve during 2009-2013 period when most of the players would have expanded, consolidated, merged or acquired.” Share of organized retail, he adds, would go up to 16% during that period providing direct employment to 2 million people.

While Technopak projections sound pleasing enough, the current scenario offers no reason to cheer. “The present retail environment is very chall

enging,” says Lalitha Banerjee, principle consultant, retail and consumer industry group, PricewaterhouseCoopers (PwC) pointing to the mounting costs and supply chain problems. Adds retail analysts Piyush Sinha, who is a part of marketing faculty at IIM-Ahmedabad : “Just adding numbers or bringing in foreign players doesn’t ensure success unless you have operational efficiency and that will come only with time.”

Knee-jerk reaction

Little wonder then, most retailers are busy formulating fresh strategies. Take the case of Reliance Retail. It has downsized its hypermarket in Ahmedabad and is tweaking its strategy in response to changing consumer demand. It is said to be leasing out an entire floor to other retail players in some cases. In response to an email, query, this is all that the company’s official spokesperson had to say: “In retail, processes are continuously evolving in accordance to the customer’s tastes and choice.”

Perhaps, it is these conditions that have forced the country’s largest retailer (by volume), Kishore Biyani — promoter of the Rs 8,600 crore Future Group that owns Big Bazaar — to turn from ‘an eternal optimist to a realist’ . “Every business has a process and it is only natural to go through such phases,” says Biyani.

Even though the group posted about 71% increase in net profits this year, it had to close two of its Big Bazaar outlets in Ahmedabad earlier this month. Clearly, the inviting ambience and all the trappings of modern retail have failed to draw consumers’ interest, who are looking for functional benefits from the retail experience.

“The core proposition and value offered is not sufficient to make consumers visit the modern retail store often enough,” says Rajan Chibba, CEO, Intrim Business Associates, a Delhi-based marketing consultancy. “Unless a repetitive visit frequency pattern is built, retailers stand to lose.”

So cost cutting is the mantra. Big Bazaar has now begun integrating the management, marketing , human resources and IT departments of its units into one, which it says, will help save around Rs165 crore a year. Big Bazaar is also planning to prune its advertising budget, reduce electricity bills and cut packaging costs. “We are closing some stores to integrate operations that helps us save costs,” says Rajan Malhotra , CEO, Big Bazaar.

According to Chibba of Interim, commercial power costs in India are three times the global norms, a lot of the retail chains are over-staffed . While newfound financial prudence is now universal , consolidation is also gaining currency. After learning that too many brands were creating confusion, RPG Group decided to consolidate 5 of its retail brands.

Spencer’ Hyper, Super, Daily, Express and Fresh have been merged into just two brands — Spencer’s Hyper and Spencers. The group also plans to consolidate its supply chain for both the formats under one business unit. Samar Singh Sheikhawat, VP marketing, Spencers Retail, says the chain is now relocating stores while focusing on large format.

Apart from high costs, insufficient investment in strengthening back-end operations, high rate of attrition and retaining a talented workforce have been a big challenge.

So what is the way out? Perhaps RC Agrawal, MD, Vishal Retail, spells it out most unequivocally . “It is good to amputate body parts that are not functioning,” he says metaphorically.

Meanwhile, the only good news for the organised retail comes from ICRIER. Its recent report on retail, Impact of Organized Retailing on the Unorganized Sector, argues that organized retail is not harming the traditional Indian retailer.

In fact, the two will co-exist to make Indian retail story a success. The report notes that 22% of the consumers shopping at organised outlets still want unorganised retail outlets and 34% of them shopping at the kirana outlets want more organised retail outlets .

Says Nirupama Soundarajan, who coauthored ICRIER report, “The initial decline in turnover and profit will smoothen out over time as organised and unorganised retail begin to coexist.”

She believes, this co-existence will lead to improvements in logistics and infrastructure, efficient supply chains, better quality produce, increased revenue for the government through taxes and lower wastage.

source:-www.economictimes.indiatimes.com