Retail Sector in India

Presented by : Ankit Nandu Hemant Jadega Abhishek Toshniwal Umesh Shraddha Poonam Waghela

THE GREAT INDIAN RETAIL STORY

Timeline of Retailing in India

Source: Citigroup Research

India a nation on the move

Current GDP ~ $1.85 trillion 4th largest in terms of GDP terms Target customer base 1.2 billion people Growth rate likely to be sustained above 14% Changing consumer behavior consumerism Growth in availability of infrastructure and mall space

The organized players

Indian companies

Foreign Players

Future Group Reliance Retail Bharti Shoppers'Stop Pyramid Aditya Birla Group Subhiksha Spencer Group Tata Westside, Tata Chroma

Nike (Single brand) Levis (Single brand) Wal-mart (JV)

Organized retail, revenue and volume growth

Total size of retail

Size of organized retail

$300bln
$8bln 3%

% share of Organized retail

Source: Economics times retail knowledge series

FORMATS

Market Profile of Various Formats

Department Stores: Shopper Stop, Lifestyle, Pantaloons

Hypermarkets: Big Bazaar, Spencer Supermarkets : Subhiksha, Trinethra

Source: India Retail Report, 2007, Merrill Lynch

Major Retail Formats

Department Stores
Well

Hypermarkets
Relatively

Supermarkets
Main

established, limited competition Entrenched in Indian Mindset Score on shopping experience Stress on branding Price not critical as they cater to upper income class

new concept, large sized department stores Growing fast, but competition to intensify Price Discount, promotional offers and Wide Varieties act as key attractions Key to success will be efficient Supply Chains and Store locations

challenge to mom and pop stores How to compensate for facilities that mom and pop stores provide namely Home Delivery and Monthly Credit ? Immense Competitions, building scale to achieve cost efficiencies will be critical

OPPORTUNITY & CHALLENGES

Which categories will grow ?

Food and Groceries Sector that the largest amount of consumer spends is concentrated. Maximum opportunity for investments Consumer durables With increasing purchasing power, consumers tend to spend the most on this category. There is nothing to prevent a company from putting up shops outside the city limits, because consumer durables are a premeditated purchase. Availability of finance options has increased spending in this sector. Home products With increasing nuclear family concept, private ownership of homes by relatively young couples across most major cities in India, national retail chains offering home furniture (and accessories) have great potential.

Consumer Preferences Evolving

From traditional to

modernized traditional

From globalize to

Indianise

From functional to

lifestyle

Growth Potential In India

Source: AT Kearney , Citigroup Research Report

Challenges

Strong long-term growth potential Severe cost pressure largely related to property rentals Profitability likely to remain low - patient capital should survive but weak players likely to exit in the near term Consolidation is on the cards Driven more by traffic growth than ticket growth Convenience stores to remain integral part of retail Need for catering to local flavors Internet retailing still to pick up in India

Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum

POLICIES

Government Policies

51% FDI allowed in single-brand formats 100% FDI in cash-and-carry format NO FDI in multi-brand stores ( like Wal-Mart) Trends indicate that the FDI would open up in retail sector, however political consensus has to be reached before that happens

Pros and Cons of allowing FDI in retail

Benefits of FDI in retail

Drawbacks of FDI in retail

Inflow of investment and funds. Improvement in the quality of employment. Generating more employment. Increased local sourcing. Provide better value to end consumers. Investments and improvement in the supply chains and warehousing. Franchising opportunities for local entrepreneurs. Growth of infrastructure. Increased efficiency. Cost reduction. Implementation of IT in retail. Stimulate infant industries and other supporting industries.

Would give rise to cut-throat competition rather than promoting incremental business. Promoting cartels and creating monopoly. Increase in the real estate prices. Marginalize domestic entrepreneurs. The financial strength of foreign players would displace the unorganized players. Absence of proper regulatory guidelines would induce unfair trade practices like Predatory

OPINIONS

Opinions on Formats and Growth Potential

Consumer financing will be an important tool to drive consumption Income growth alone may not be sufficient Margins to be driven by non-core businesses Retailing will remain concentrated in the top 10 towns Multi-format retailing to thrive Large scope for rural retailing
Views of Mr Kishore Biyani, Pantaloon Retail India Retail Forum

Growth Drivers & Barriers

Growth Drivers
Consumption

Barriers to Entry
Regulatory barriers Fragmented Suppliers Lack of infrastructure Supply Chain Complexities Lack of skilled Human Resource Differential Taxation System Labor Legislation Clustering of Malls

Boom, Higher

Incomes Favorable Demographics Changing Lifestyles and Preferences Real estate boom Manufacturing Reforms Reduction in import dutiesoffering

Views of Foreign Players

Environment not conducive enough Only 51% FDI in single brand retailing Many retailers (e.g.. IKEA) unwilling to enter without 100% FDI) Insufficient data on consumer behavior Focus in India only on growth and not profitability Scope for private labels (only 4% in Asia compared to 17% in western markets)

Source: Morgan Stanley India Retail: Key Takeaways from the India Retail Forum

Hurdles towards Value addition

Wide disparity between peak & lean period arrivals usually ranging from 100 150% Long revenue cycle as products to be purchased in bulk during peak season Control of markets by few traders and agents who command large storage capacity Discouragement of farmer lower returns act as disincentive

Crashing of prices during peak season

Larger intermediaries exerts negative pressure on farmer margin, and deteriorates quality due to multiple handling

Corporate Role core farming land ceiling restrictions Incentives to Corporate to enter

Increase Mechanization to tackle low availability of labour and to remain a

low cost producer

Liberalized credit norms for agricultural production , marketing and infrastructure development

Changes in market regulatory framework to allow corporate to establish

market yards

At present 7521 regulated markets which lack critical infrastructure

Review of legal instruments to facilitate entry in marketing activities Tax holidays and incentives Excise exemptions for CAPEX items.

Is India Ready?

Low level of value addition, high post harvest loss