All eyes on Indian retail

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All eyes on Indian retail

India's retail market is presenting huge opportunities for grocery items and fast-moving consumer goods in view of the rising disposable income among the emerging middle class and the country's 1.25-billion strong population.

Photo: Klaus Nahr, via Flickr Creative Commons

Photo: Klaus Nahr, via Flickr Creative Commons

Over the next few years analysts predict India's economy will expand steadily and continue to outpace many other Asian economies, despite a slowdown from the growth highs of 9%-9.5% in 2004 to 4%-4.5% last year.

In turn, expectations are the country's retail market, currently worth US$450-500 billion, could hit a value of US$865 billion by 2023 on the back of rapid and sustained growth for both the organized and unorganized retail sectors.

"India is the sixth-largest retail consumer market in the world and the market is moving fast," Himanshu Pal, director of retail insights at Kantar Retail, confirms with

According to analysts, market drivers include increasing urbanization, rising consumer affluence and higher aspirations, especially among the younger generations.

"There has been a lot of development in India in terms of demographics and technology," Pal notes.

"A huge chunk, roughly 60%, of the population is now economically active so we are seeing a rapid emergence of the middle class which is driving retail sales."

Indian consumers are demanding choice while their purchasing habits are shifting to shopping at modern retail stores. In response, foreign supermarkets are increasingly entering into joint ventures with local players in order to operate in compliance with strict Indian retail laws.

During the last few months alone, several foreign firms have made moves to set up shop or expand their networks in India.

Tesco has partnered with Indian multinational Tata, acquiring a 50% share in the group’s retail firm Trent Hypermarket Limited. Apparently Tesco now plans to invest over US$100 million in opening supermarkets in Maharashtra and Karnataka.

France's Carrefour is also reportedly in advanced talks with Indian conglomerate the Bharti Group to establish a cash-and-carry joint venture.

Meanwhile, Wal-Mart - which exited a partnership with Bharti in October 2013 - has revealed it will open 50 additional wholesale outlets in the next four to five years and extend its e-commerce platform to supply small shopkeepers.

U.K. retailer Marks & Spencer has also announced plans to more than double its store network in India by 2016 from 36 to 80 outlets.

As a result of the rise in foreign investment, the market share of modern retailers in India is expected to continue growing from 10-15% currently to 30-35% in the next five years.

Despite the growth, however, analysts claim that modern retailers will not take over completely since Mom and Pop stores still remain hugely important to India's local retailing scene.

"The organized grocery market is still not so popular in India although it’s gaining acceptance over time," states Rohan Hingorani, an associate analyst for India at Planet Retail.

"People shop at hypermarkets and superstores once in a month. But for daily items they still rely on local Mom and Pop stores."

Solid potential for food retailing

At a grocery food level, healthy eating and rising demand for gourmet produce and high-end fresh food are some specific trends that are emerging. As such, analysts say food and grocery retail opportunities in India are very high in particular, with the sector already representing 69% of the retail market.

"Nowadays shoppers are looking for items which are ready to use," Hingorani claims.

"For example, shoppers at supermarkets prefer to purchase cut and packed vegetables instead of the uncut loose ones.

"To meet this demand the retailers have introduced packed fresh food by cutting and sterilizing fruits and vegetables and packing them in airtight transparent plastic packaging."

Pal explains that demand for fresh fruit and vegetables is very high in India since cooking is still done from scratch and continues to play an important role in daily life.

"Indians consume more fruits and vegetables than their European counterparts but preserving produce is a challenge because many parts of India are used to power cuts.

"So they buy produce three to four times a week and usually from local markets or street vendors rather than from modern retail stores.

"Produce can sometimes be five days old when it reaches the supermarket shelf and due to a lack of cold storage facilities and warehousing it doesn’t look fresh enough for Indian consumers."

With that in mind, Pal believes there are greater opportunities for modern retailers to sell more fresh produce in the big towns and cities such as Delhi.

"There you are much more guaranteed to have power all day or a back-up supply," he explains.

"There has also been more of a demographic shift in the urban areas in terms of women going out to work as well as men, and where people in general have less time to buy produce every day."

Improving cold storage and produce preservation is a clear challenge that the Indian retail market still needs to overcome, and there are already signs of movement in the right direction, according to Pal.

"Reliance Retail is working with some growers as well as buying its own land to bring produce direct to its stores.

"But for international retailers there is lots of red tape in terms of moving produce between India’s states which slows down the transportation process.

"Growers are also wary of international players and prefer to sell through local middlemen, although that perception is changing."

Pal says further improvements to logistics and cold storage facilities could come via India’s Foreign Direct Investment (FDI) law which requires foreign retailers to invest in back-end infrastructure such as logistics and cold storage.


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