NEWSLETTER ON HIGHWAY

RETAILING

INTRODUCTION
India, being one of the fastest growing economies, requires an
efficient road network for national integration as well as for socio-
economic development. India has a huge network of national
highways having a total length of 70,548 kms, which covers 2% of
the total road network carrying 40% of the total traffic. This
network is managed by the NHAI (National Highway Authority of
India).

The longest highway in India is NH7 which stretches from Varansi

in Uttar Pradesh to the southern most point of Indian mainland,
Kanyakumari. In contrast, NH47A stretches from Ernakulam to
Kochi being the shortest highway covering only 4 kms.

SIZE

• India has an extensive road network of 3.3 million kms - the

second largest in the world.

• Roads carry about 61% of the freight and 85% of the

passenger traffic

• Highways/Expressways constitute about 66,590 kms (2% of

all roads) and carry 40% of the road traffic
STRUCTURE

• NHAI is the apex Government body for implementing the

NHDP. All contracts whether for construction or BOT are
awarded through competitive bidding.

• Private sector participation is increasing, and is through:

1. Construction contracts

2. BOT (build-operate-transfer) projects for some

stretches - based on either the lowest annuity
or the lowest payment from the Government.

3. BOT contracts permit tolling on those stretches

of the NHDP.

POLICY

• 100% FDI under the automatic route is permitted for all road
development projects.

GOVERNMENT INITIATIVES IN THE DEVELOPMENT OF

NATIONAL HIGHWAYS IN INDIA:

An ambitious National Highway Development Programme (NHDP),

involving a total investment of Rs.2, 20,000 crore upto 2012, has
been established. The main elements of the programme are as
follows:

• Four-laning of the Golden Quadrilateral and NS-EW

Corridors
(NHDP I & II) -: The NHDP Phase I and Phase II comprise of
 the Golden Quadrilateral (GQ) linking the four metropolitan
cities in India i.e. Delhi-Mumbai-Chennai-Kolkata, the North-
South corridor connecting Srinagar to Kanyakumari including
the Kochi-Salem spur and the East-West Corridor connecting
Silchar to Porbandar besides port connectivity and some
other projects on National Highways.

• Four-laning of 12,109 kms (NHDP-III) -: The Union

Cabinet has approved the four-laning of 12,109 km of high
density national highways, through the Build, Operation &
Transfer (BOT) mode. The programme consists of stretches
of National Highways carrying high volume of traffic,
connecting state capitals with the NHDP Phases I and II
network and providing connectivity to places of economic,
commercial and tourist importance.

• Two laning of 20,000 km (NHDP-IV) -: With a view to

providing balanced and equitable distribution of the
improved/widened highways network throughout the
country, NHDP-IV envisages up gradation of 20,000 kms of
such highways into two-lane highways, at an indicative cost
of Rs.27,800 crore.

• Six-laning of 6,500 kms (NHDP-V) -: Under NHDP-V, the

Committee on Infrastructure has approved the six-laning of
the four-lane highways comprising the Golden Quadrilateral
and certain other high density stretches, through PPPs on
BOT basis.

• Development of 1000 km of expressways (NHDP-VI) -:

With the growing importance of certain urban centres of
India, particularly those located within a few hundred
kilometers of each other, expressways would be both viable
and beneficial.
 • Other Highway Projects (NHDP-VII) -: The development
of ring roads, byepasses, grade separators and service roads
is considered necessary for full utilization of highway
capacity as well as for enhanced safety and efficiency.

HOW HIGHWAYS HELP IN DEVELOPING THE INDIAN

ECONONY?
The highway retail industry in India is passing through a period of
profound and accelerating change with consolidation and
competition quickly shaping one of the world’s biggest mall
markets. The success in these businesses with consumer
confidence and spending is yet to take off significantly and the
ultimate winners will be those who continue to provide an
unbeatable value proposition to their customers.

India has been ranked the fifth largest emerging market for the
retail sector with a predicted 20% year on year growth for the
organized sector. According to a report by World Bank, every
rupee spent on roads is worth seven times as much return on the
socio-economic development front.

EMERGENCE OF MALLS ON HIGHWAYS

Highway malls are one of the fastest growing retail formats,
especially in the Delhi/NCR region. Some are already in operation
in the NCR (Crown Plaza and PVR SRS); many more are under
construction along National Highway 8 (NH 8). One of the largest
highway mall projects is the 3.6 million-SF Mall of India opened in
2008 on NH 8.

Highway malls is the next big thing amongst real estate

developers serving as a one-stop shop for those travelling on the
highway. There is no doubt that success of this new retail format
can be foreseen with the fact that most of the top national and
international brands are jumping in to take a pie in all the
upcoming highway malls across India.

The concept of the highway mall, though new to India is fast

catching up with more and more top international brands signing
up with developers of these malls.

Gurgaon at this moment of time has become the hot spot of

malls, also other side of Delhi is coming up with highway malls,
namely, the north of Delhi border, Sonepat and beyond.

It is worthwhile pointing that from a handful of malls in the mid

90s, India has more than 100 malls spread across large and small
cities. Developers have been experimenting with different retail
formats now and then to offer something new to the customers
like specialty stores, department stores, hypermarket, etc. But
highway malls is the new retail mantra that has caught the fancy
of developers right now.

Big developers such as TDI, Ansals, Omaxe Group & Parsvnath

Group have already realized the potential of these brands. Brands
like Adidas, McDonald’s, Reebok, Provogue, Adlabs have already
signed up with the developers for a space in highway malls.

The very fact that these leading brands are eager to be a part of
the highway mall culture is because the cost of land in metros is
high and the return on investment is low as compared to non-
metros, hence it becomes difficult for the brands to sustain
themselves in the long run.

Another significant benefit of big format highway malls is that

zoning can be created with utmost ease. Also, taking into account
the burgeoning purchasing power even in the suburban areas and
a change in the lifestyle preferences of the consumer there,
developers are optimistic about the success of the project
expecting a footfall of more than 20,000 people per day including
local residents and highway traffic.

Today highway retailing is emerging as a key area with ample

opportunities. With an improved network of highways, highway
travel, both for business and leisure, is increasing. As a result,
there is a need to offer convenience and facilities in this sector.

There are around 140 malls in the country as of mid 2007 and the
estimate is that even today, the country can actually support
more than 1000 malls and shopping centres in more than 500
towns. According to Malls of India, the 2009 edition published by
IMAGES Group, which has been released at the INDIA RETAIL
FORUM on 16th September, 2009 in Mumbai, an additional 67
million square feet of mall space, is projected to be added by Q1,
2011.

SELECTING A HIGHWAY LOCATION FOR OPENING

RETAIL OUTLETS

Retailers need check on the availability of the best location in the

market. The malls at highways basically have two catchment
opportunities:

1. The flow of road traffics between connecting cities amounts

to over 25,000 vehicles passing through the venue every
day.
2. And the neighborhood catchment area of nearby towns,
footfalls coming in from the vicinity of 10 to 20 minutes
drive.

Another criteria for retailers to select a location on a highway is

its attractiveness. A retailer must analyze the following
parameters before selecting a location:
 1. Road patterns like major highways and freeways should
make possible for customers to travel in ease to the retail
store.
2. Road conditions should be good. This accounts for not only
the repair status of the road but also the traffic signals, the
age limit, congestion and number of lanes.
3. Natural barriers such have rivers or mountains and artificial
barriers like bridges, railway tracks and parks should be
taken under consideration.
4. Retail store should be easily visible to the customers.
5. The parking lots must be sufficient. The traffic flow of people
should not be such that it impedes the store by congestion
and overcrowding the place.

A trade area can be determined by customer spotting techniques.

Analyst need to consider different factors such as checking the
customer demographics, age distribution, consumer market,
psychographics, annual household income, environment and
safety. Following are few of the parameters on basis of which, we
can justify highway as among one of the best retail location.

1. Checking the customer enormity: It is a statistical

parameter on the total number of customers in the area. The
National Highways in India, totaling about 65,000 km,
approximately carry about 70 percent of the freight traffic and 85
percent passenger traffic. (www.nhai.org/).

2. Age distribution: report contains details on customer’s age

and the gender. If we view highways as a location for opening
retail outlets, we will find it pull every age group people towards
it.
3. Consumer market: shows information such as the
percentage of travelers with four Wheelers, percentage of
travelers with 2 wheelers, annual household income, and annual
household saving

5. Annual household income category: contains details of the

customer’s income whether they fall under 1000 lpa.

6. Environment: Retailers need to look at neighborhood traffic

generators such as restaurants, number of tourist places to visit,
adequacy of parks, movie halls, educational institution hostels
and hospital complexes.

7. Safety: It is always safe to check the crime rate in the vicinity

such as the number of murders, crime against women, theft and
robbery. This helps out retailers to ensure theirs as well as their
customer's protection.

TYPES OF SHOPPING COMPOUND OVER HIGHWAY

• A strip mall (mini – mall) is typically developed as a small

commercial unit, consisting of a row of multiple (usually
connected) storefronts, set just off a highway or other major
 arterial road, and having associated parking spaces. A strip
mall usually contains somewhere between 4 and 10 distinct
storefronts, though one section of road may feature multiple
strip malls. Traffic ingress/egress is controlled, and there are
usually few pedestrian connections to surrounding
neighborhoods. Mini-malls are service-oriented and usually
contain small scale stores that serve everyday needs of
nearby residents (such as a video store or small restaurant).
Strip mall businesses are usually small, privately operated
"mom and pop" enterprises.

• Factory outlet malls are a relatively new and successful

form of consumption space. Outlet malls are a product of
investors seeking profitable opportunities in the turbulent
retail industry, producers fighting back, and consumers
perceiving branded goods to be superior. Consumers
perceive factory outlet malls to be price-competitive, crime-
free sources of name brand merchandise. Investors see the
malls as attractive destinations for their money. Factory
outlets along highways or high-volume transit corridors are
often run by franchisees and not by the companies
themselves, since the space is not legal retail space. A
factory-outlet mall offers legal space with good ambience to
sell factory surpluses, seconds or off-cycle products.

• Food and Beverages outlets at highways are set up by

taking care of different facilities. Seating should be
comfortable, the outlet should have more washrooms,
operating hours should be longer and service should be
quick because the customer is generally in the mood to ‘eat
and hit the road again. Also, food has to be different, hot and
available 24x7. The food should be fresh, more filling and
sumptuous.
FOOD CHAINS HIT HIGHWAYS

Fast food brands such as McDonald’s, Nirula’s, Barista and

Pizza Hut are already gambling big on highways to tap the
moving customers segment. Both national and state hi-
ghways are increasingly becoming an important growth
platform for these chains, with McDonald’s claiming to have
been earned 15 per cent of its turnover from its highway
outlets. Currently, Nirula’s has only four highway outlets
located at Manesar (NH8), Madhopur (NH1), Meerut (NH8)
and Panipat (NH1). It is planning to open an outlet at Behror
as well.

Today, 50 out of 900 cafes of Café Coffee Day are nearly

located on highways criss-crossing the country, including
those connecting Bangalore and Mysore, Bangalore and
Tumkur, Old Madras Road, Hosur Road, the Bangalore-Ooty
highway, the Delhi-Chandigarh highway, Coorg and that
connecting Mumbai and Pune. The company is looking out
for ideal locations on the Chandigarh-Amritsar and
Uttaranchal-Dehradun routes. The company wants to have at
least 85 highway cafes running by the end of this fiscal, i.e.
by the end of 2010.

Though Barista, the country's other well-known café chain is

also present on some significant routes on the highway grid,
the company is skeptical of serving the travelling customer.

Gurgaon-based Horizon Group's premium frozen yogurt

chain Cocoberry, is also in talks with a few retail chains to
set up highway outlets.

The National Highway Authority of India (NHAI) is also trying

to promote wayside amenities like bars, restaurants,
 restrooms and petrol pumps at every 50 km. In order to
invite more private players, they have brought down the
annual rent to 1 per cent from 10 per cent of the cost of
land. After the first year of operations, an additional one per
cent will be added every year reaching up to 10 per cent.
NHAI has also relaxed the lease period for such projects to
30 years from 15 years to make them more profitable. Any
private company that has minimum one year of experience
can now participate in bids instead of five years.

FUTURE OF RETAIL OUTLETS AT HIGHWAYS

Travelling along the highways may mean a lot more fun and ease
in the near future. Following international trend, real estate
players in India have started to develop `Highway Malls' in
significant numbers. One of the reasons for the trend catching on
is the fact that land is not easy to acquire within city limits.
Besides, along the highway it comes at more reasonable rates
and has considerable footfall potential. Also, if one has to develop
a larger mall, the land is not easily available within the city these
days. Also, land is cheaper along the highways leading to a
reduced amount of rentals. Cheaper land means providing wider
corridors and larger atriums to the customers and, on the other
hand, bigger shops to the retailers.

Food joints are of utmost importance for highway travelers.

Considering this necessity, BPCL is going to invest Rs.6 billion for
the next five years to set up 250 ‘Ghar’ outlets on the highways
to provide home-away- from-home experience to the truckers and
highway travelers. These outlets will provide non-fuel facilities like
shopping, eateries and entertainment. First to enter such
strategic alliance- McDonald’s, has three such outlets in Mathura
(UP), Doraha (Punjab) and Chanakyapuri (New Delhi).

As far as the investment in setting up such non fuel retail outlets

is concerned, it may vary from 15 lakh for a small outlet to 50
lakh for a food joint like McDonald’s. This investment varies for
each site depending upon the type of facility they put up. Cost of
constructing an outlet largely depends on the class of market,
location, and products and services offered from that outlet.
Subway already has three such outlets and plans to open another
three outlets shortly. Guardian Lifecare has invested Rs.1700 per
sq. ft. to set up their outlet at petrol pumps.

Located on the Ludhiana-Jalandhar highway, Ansal HIGHWAY

Plaza, caters to commuters at a mere 7 minutes from BMC Chowk,
3 minutes from Jalandhar Cantt and 22 minutes from Phagwara. It
is just a short, hassle-free drive away for residents in the region.
Apart from highway commuters, the mall also has a catchment of
over 21 million resident consumers, in the wide radius of its
surrounding urban areas, having a high per-capita income. The
promise is also reflected in the fact that Phagwara depends
entirely on Jalandhar for shopping.

FEASIBILITY FOR RETAILERS AT HIGHWAYS

Attractive location automatically attributes to high footfall on a

highway retail outlet. Average consumer is more entertainment-
savvy these days, and traditional offerings may no longer be
enough. Travelers need to relax after a long journey, therefore,
expecting to be entertained, dazzled and educated. For example,
food outlets may also actively engage their customers by
combining it with games, sports, and various other leisure
activities which makes a customer have a pleasant experience.

Though the malls and large format grocery stores may be crowd-
pullers, only 10 per cent are top end consumers who actually
shop at the fancy branded boutiques in these malls. An
overwhelming majority of the Indian consumers still feel
uncomfortable shopping in a sanitized, air conditioned, steel and
glass environment.

BENEFITS OF RETAIL OUTLETS AT HIGHWAYS

In larger cities, highways represent growth and are welcomed by

most of the general population as they often relieve congestion,
shorten travel time, and provide new business opportunities.
Streamlined and well-constructed highways also result in fuel
efficiency and safer operations for vehicles carrying goods. In
most communities, highway bypasses have little adverse impact
on overall economic activity. Over the long term, average traffic
levels on the pervasive route in medium and large bypassed
communities are higher than pre-bypass counts, indicating
continued strong economic activity in those communities and the
opportunity for retail trade to flourish. Very little retail businesses
has occurred in bypassed communities, meaning that few
businesses have relocated or developed new operations in areas
adjacent to the bypass route. Communities view their bypasses as
beneficial overall, while at the same time communities and
individual businesses understand that the bypasses presented
changes that must be addressed proactively.
Among the benefits of bypasses are associated with
improvements that were identified by the communities such as
improved traffic flow, reduced congestion, reduction of truck
traffic, and opportunities for implementation of planned
development. The benefits of an improved flow of traffic from
bypass around rural communities along a transportation
passageway does not appear to be compensate by losses of retail
sales in the aggregate businesses serving the local trade area and
those dependent on repeat customers are actually likely to
benefit from an improved business district shopping environment.
A transfer among individual business owners appears to be
occurring in these communities where certain businesses along
the old highway are closing and others are opening along the new
bypass. Over time, the majorities of merchants appears to be
adjusting to the new situation and are reported to be in the favor
of the bypass. Regardless of their location, a majority of
merchants agreed that the traffic volume and noise had
decreased since the bypass. They thought the shopping
environment and accessibility of suppliers and delivery trucks to
their places of business had improved since the opening of the
bypass.

A major traffic artery brings a steady supply of new customers to

business owners who are savvy enough to locate themselves
conveniently while also making it easy for the staff to get to work.
Entrepreneurs should choose a business plan which strongly fits
the needs of commuters and tourists. A busy highway provides a
constant supply of customers.
DRAWBACKS OF OPENING RETAIL OUTLETS AT
HIGHWAYS

1. Setting up a retail outlet on highways requires high capital.

You have to keep the inventories in advance, set up the
outlets as per customer convenience, etc. because it is
unfeasible to do these things on regular basis. The high
capital outlay also means higher chances of risk.

2. Retailing belongs to a much more passive kind of business.

Instead of going out to get business, you basically stay in the
shop waiting for customers. You can't do out and out sales
that are more active in sourcing your customers. And having
outlets at highways becomes more reflexive because of
uncertainty of regular visit of customers.

3. It is not flexible to made amendments that may take place in

the market on everyday basis.