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RETAIL INDUSTRY
Demographics:

India is the world’s 4th largest economy as regards GDP(in PPP terms) and is expected to rank
3rd by 2010, just behind the US and China. The country is on the brink of becoming an
economic powerhouse ready to unleash its largely untapped potential for those who are willing to
take the right step forward. In the retail sector, in spite of a 1.07 billion strong population, the
target consumer base for most retailers in India stands at about 405 million. Of this, about 30
million have a combined purchasing capacity of USD 230 billion. The country’s 6 million ‘rich’
population shops worth USD 28.36 billion every year.

The retail sector in India is highly fragmented and organized retail in the country is at a very
nascent stage. There are about 12 million retail outlets spread across India, earning it the epithet
of a “nation of shopkeepers.” More than 80% of these 12 million outlets are run by small family
businesses which use only household labour. Traditionally, small-store (kirana )retailing has
been one of the easiest ways to generate self-employment, as it requires limited investment in
land, capital and labour. Consequently, India has one of the highest retail densities in the world at
6% (12 million retail shops for about 209 million households).

In India presently transitioning segmental and income demographics with booming middle class
households armed with greater disposable incomes currently comprise 8% of the total number of
households. This figure is expected to increase to 13% by 2010 growing annually at around 15%.
Disposable incomes too are expected to rise at an average of 8.5% p.a. till 2015.

These conditions are favorable for retail business. Subhiksha caters mainly to the needs of middle
and lower income groups as they wanted to attract not the top end customer but the aam aadmi.

Subhiksha was one of the early entrants in retail market. They entered retail market in year 1997
with capital of 5 Crores. Organized retail was new concept then. The first question when they
started was why would customer come to their store abandoning the existing store? It had to be
the price they thought, because ultimately there is no difference between the branded products
like say Boost or Surf or such things. So, Subhiksha decided to sell branded products at a lower
price. Also mostly women are involved in purchases of grocery items and they are quite price-
conscious. So Subhiksha offers goods at lowest possible prices.
Geographic:

Besides the 6 metros, India has 61 other cities with populations greater than 0.5 million –these
cities represent 80% of India’s population and contribute about 14% to the country’s GDP. Even
though the 6 metros have the greatest concentration of India’s wealth, the other 61 cities have
consistently outpaced the metros in growth rates since 1995. These cities are witnessing higher
incomes and a fundamental change in consumer mindset. Increasing awareness levels in Tier II
cities are eroding the earlier difference between metros and Tier II cities in terms of ‘urban
aspirations.’ International brands increasingly relying on Tier II cities to drive growth are Nokia,
Pizza Hut, Ford, Reebok and Adidas.

Subhiksha has presence in all types of cities, Metros and Tier II cities. From the company’s early
research of three months, Subhiksha found that consumers prefer buying groceries from closer
home. So, they decided to set up 1,000 sq ft shops all across the city and not a 10,000 sq ft big
store at one location in Chennai. Subhiksha has focused on opening stores region by region. It is
important to achieve deep penetration to compete with neighborhood kirana stores. Presently
Subhiksha have presence nationally with 1000 outlets and spread across more than 90 cities.

Political:

In spite of the opposition presented by the Left parties, in January 2006, the Union Cabinet
approved a major rationalization of the policy on. FDI in retail to further simplify procedures for
investing in India and to avoid multiple layers of approvals required in some activities. Till now,
Government approval was required for FDI in wholesale cash and carry trading and FDI beyond
51% in export trading. To facilitate easier FDI inflow, instead of having to seek FIPB approval,
FDI up to 100% will now be allowed under the automatic route for cash and carry wholesale
trading and export trading. The Cabinet has also allowed FDI up to 51% with prior Government
approval for retail trade in ‘Single Brand’ products with the objective of attracting investment,
technology and global best practices and catering to the demand for such branded goods in India.
This implies that foreign companies can now sell goods sold globally under a single brand, such
as Reebok, Nokia and Adidas. Retailing of goods of multiple brands, even if the goods are
produced by the same manufacturer, is not be allowed. Going ahead, the Government is expected
to adopt a highly calibrated approach to allowing further FDI in the retail space. There is a
possibility that the relaxation of FDI restrictions may take another 3-5 years. This may deter
some international retailers from investing in a big way. However, regardless of the restrictions,
international retailers are entering India in droves. The returns on FDI in retailing in India are
likely to be greater than those in China because large Indian retailers are much smaller than their
Chinese counterparts. International retailers will find the competitive environment easier on the
market share and the growth fronts.

ECONOMIC
Indian Economic Situation :
India's economy is diverse and encompasses agriculture, handicrafts, textile, manufacturing, and
a multitude of services.Agriculture employs nearly 62% of total population. Service sector
accounts more than half of India's Gross Domestic Product. It recorded a GDP growth rate of
9.1% for the fiscal year 2007–2008.The recent financial crisis in US is showing some impact on
Indian Economy. India’s GDP growth estimate for the current fiscal (2008-09) has been
downgraded from 8 per cent to 7.4 per cent and, for the next financial year (2009-10), from 8.5
per cent to 7 per cent.. FIIs have been pulling out from the stock market in a big way, and
corporate borrowings from the global markets are becoming increasingly difficult.

Taxation :
Companies residents in India are taxed on their worldwide income arising from all sources in
accordance with the provisions of the Income Tax Act. Non-resident corporations are essentially
taxed on the income earned from a business connection in India or from other Indian sources. A
corporation is deemed to be resident in India if it is incorporated in India or if it’s control and
management is situated entirely in India. Domestic corporations are subject to tax at a basic rate
of 35% and a 2.5% surcharge. Foreign corporations have a basic tax rate of 40% and a 2.5%
surcharge. Domestic corporations have to pay dividend distribution tax at the rate of 12.5%,
however, such dividends received are exempt in the hands of recipients.

FDI :
Currently, FDI in multi-brand retail is not permitted, while 51 per cent foreign equity
participation is allowed in single-brand retail. And in Cash & Carry Business FDI allowed is 51
per cent Meanwhile, the DIPP has proposed FDI of up to 51 per cent in multi-brand retail of
watches, electronic items, computers and sports goods.

Impact On Subhiksha;
Since the borrowing has become more costly in Indian market the expansion plan s of Subhiksha
might need to postponed.
The current tax structure and plan is a deterrent to the Subhiksha. There are different sales tax
rates as well as stamp duties levied in different parts of the country. Movement of goods across
districts incurs octroi duty, which is a drain on revenues. Therefore, a key demand from the
industry is to abolish local levies like octroi or entertainment tax, and implement VAT uniformly
across all states. Subhiksha and Organized retail sector has to pay huge taxes, which is negligible
for small retail business.
The higher FDI allowed will help in Subhiksha to have foreign partner. The Foreign partner will
bring in Capital and Technology which will help in improving the Supply Chain efficiencies and
can also boost Subhiksha’s expansion plans.

SOCIAL
Consumer Attitudes:
Currently the country has a population of over one billion, 60% of which is under 30 years of
age. This means majority of the population is young and working class with higher purchasing
power. The low median age of population means a higher current consumption rate which augurs
well for the retail sector. This young population has severe impact on family’s purchasing
decision. Today more and more consumers are vocal on the quality of the products/services that
they expect from the market. This awareness has made the consumer seek more and more
reliable sources for purchases and hence the logical shift to purchases from the organized retail
chains that has a corporate background and where the accountability is more pronounced. This
young population has a very positive attitude towards organized retail sector. Subhiksha should
target this young population of India.

Living Standards:
Living Standards of Indians has increased over the last few years in a significant way. India has
around 192 million households. Of these only a little over six million are ‘affluent’ – that is, with
household income in excess of INR215, 000. Another 75 million households are in the category
of ‘well off’ immediately below the affluent, earning between INR45,000 and INR215,000. This
is a sizable proportion offers excellent opportunity for Subhiksha to serve.

TECHNOLOGY
a) Retail Demand Forecasting: All customer transactions throughout the day, all details of their
purchases, are stored as database, and then the patterns are analyzed to forecast the future trends
of the consumers' behaviour.
b) Inventory Management: The use of stock should be regulated. There should be optimal use
of store space and maximum for selling. The varying time for replenishment of different products
helps them to save space and avoid blockage of money.
c) Store Management: A place for safe-keeping of retail and whole-sale commodities is kept. IT
helps sending alerts regarding out-of-place or stock-out items.
Technologies Used
RFID Radio Frequency Identification: It's a technology used to locate and check the
availability of a product. It's a data collection technology that uses electronic

tags for storing data. The tag, also known as an "electronic label", "transponder" or "code plate",
is made up of an RFID chip attached to an antenna. The reader sends the wave, which can read
the chip. Unlike bar code system, which needs a scanner closely held to the product to read, the
RFID chip tag can be read from distance.
Smart Operating Systems: Smart Operating Systems enterprise software are providing solution
for manufacturing and distribution from Lean Manufacturing, Just-In-Time (JIT), and Six Sigma
initiatives, to postponement strategies to Collaborative Planning, Forecasting, and Replenishment
(CPFR), and Sales & Operations Planning (S&OP)

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