India Retail contd...

I had a chance to listen to a webinar on an India Retail tour done by a Retail Forward analyst (Subscription maybe required). It was a very interesting approach where the analyst went to 4 major metro cities (Mumbai, Delhi, Chennai and Bangalore) and took a tour of some of the major stores in apparel, grocery and general merchandise specialities. It was more of study by observation then really looking at major statistics but regardless there were some interesting numbers thrown. Some key highlights

• India is among the 6 fastest growing retail markets with a CAGR of 10.4 % for non-auto retail.
• The more interesting part is that 96 - 97% of the retail sector is unorganized with over 12 million small mom and pop retailers. There is one exception to this - apparel, where the organized sector penetration is about 20%
• About 65% of the retail sector comprises of grocery. The spoliage rate is extremely high for produce going upto 35% of the total inventory.
• World over the real estate cost component comprises about 3 - 6 % while in India it is in the range of 7 - 27 % (!!!!) of the total operating costs.

Beyond the above numbers, some interesting observations were made by the analyst on what Indian retail does right. I am listing a few that I could note down

• India seems to offer a very high degree of development in visual merchandising. Right from the street fruit and flower vendor to the bigger departmental store, there is a big emphasis on making the merchandise visually appealing. Shopping is viewed as a family outing and retailers tend to make their store fronts as attractive for them as possible
• In addition to the visual appeal of the merchandise, smaller retailers seem to be very good at space utilization. Perhaps the higher than average cost component that the real estate has in the cost component is responsible for this. The report cites the example of a local panwallah (betel leaf vendor) shop where colorful merchandise is hung vertically to make as much use of space and at the same time display it to the potential customer
• There are some stores which are somewhere midway between organized and unorganized retail. Saravana stores in Chennai is cited as an example. This store targets lower to middle class customers with multiple levels selling apparel, consumer goods etc. Its unorganized aspect is its high reliance on manual labor to process orders where one associate packs, other provides a counter receipt, another is a runner who takes the ticket merchandise to the front desk for customer to claim. Its organized aspect is the fact that they have cut all middlemen and directly buy from the producers. Their model is low margin and high volume.
• From a branding perspective there is a trend of Indo-Western fusion. This is seen all the way from apparel to foreign fast food restaurants adapting a more local flavor and providing wider vegetarian options.

How India shops

A special report was published by Mckinsey Quarterly on the retail climate in emerging economies (Brazil, India and China). An article here talks about the apparel buying behaviour in India. I probably already mentioned before that more than 95% of the Indian retail sector is unorganized. Apparel however has a slightly larger component in the organized sector. Some of the key findings from the report,

• "nearly 40 percent of the mass-market Indian shoppers surveyed said that their most important shopping occasions revolved around special events, such as weddings and annual religious festivals—a figure dramatically higher than the one for shoppers in the other emerging markets"
• "greater extent than elsewhere, shopping is a family activity in India: nearly 70 percent of its shoppers always go to stores with family, and 74 percent—more than twice the average of Brazil, China, and Russia—view shopping as the best way to spend time with family." - this I think is unique. In most developed economies, shopping during annual holidays is seen more of a stressful activity while in India it seems like an activity for family fun.
• And this one is the most unusual - "India is unusual in that the market for men’s apparel is larger than the women’s market, where traditional Indian apparel still dominates". Somehow growing up in India I never noticed this. I always thought the women in the household has many more clothes/accessories. I would definitely like to see the numbers around this.

One interesting thing about the report is that they have surveyed only women to study the purchasing habits citing that - "women in many markets not only decide what clothes to buy for themselves but also influence clothing purchases for their children and husbands". I wonder what the basis for that assumption is but on a lighter note I was reminded of this ad from childhood while I was growing up in India. It centers around this quintessentially Indian family woman who is justifying why she chooses a specific detergent for her family. Its in Hindi and unfortunately without sub-titles but was one of the early TV ads on detergents and the ad agency looks like had the same idea in mind - that women make the key buying decisions in an Indian household.

Carrying Forward

I came across a news article on Carrefour entering Indian market with Cash N Carry business. While a lot of foreign entrants are looking at domestic JVs to get into the retail space in India, this move by Carrefour seems to be more cautious and sensible. The round about way to get to one of the world's largest pool of consumers is mainly because of Indian laws that prohibit foreign retailers from running 100% ownership ventures unless they sell single brands. But the interesting part is that setting up a cash and carry operation helps in creating the supply chain infrastructure that can be easily ramped up to support retail network when it is put into place. Currently the Indian retail environment is in a state of flux where retailers like Reliance are facing a stiff opposition from smaller mom and pop stores who happen to form a large political constituency. A wait and watch game might be the right way to go till the promised land starts reaping retail bonanza