BLACK FRIDAY is here. The day after after Thanksgiving marks the start of one of the hottest shopping season in US that sees the retail chains and stores being mobbed in a quest for the best deals and prices. Economist says that the day is called black not because of the chaos caused by queues and crowds, but because it marks the moment when retailers are supposed to move from the red (indicating losses) to the black (indicating profits). In the coming weeks, the retailers in US would see a sharp climb in the consumer spending levels. And the retail industry expects to see green once again.
In India too, retail is one of the hottest and most recent sectors of the Indian economy to open up for foreign direct investment. Even though most of the sales to the Indian consumers are still made through the corner ‘kirana’ (read grocery) stores, yet recent efforts by companies like Reliance, Spencer and Pantaloon are symptomatic of changing dynamics in this industry. Reliance is planning to spend nearly USD 5 billion over the next few years - the company has opened its first store in Hyderabad recently.
The growth of modern retail in India is converging with the “consumption economy“. The growing interest in Indian retail industry is primarily driven by the strong and consistent economic growth fuelled by rising income levels and a stronger business environment across industries. With nearly 60% of Indian consumers being under 30, the per-person spending levels have suddenly rocketed skywards. And I believe that the opportunity would be in organized retail, a nascent sector that is expected to grow at an extremely rapid pace in the coming years.
Indian Retail has become the cynosure of all eyes and the global retail biggies like Wal-Mart, Carrefour, Target, Metro, Sears and Tesco are already trying to enter the Indian markets, in an effort to cash-in on the rapidly evolving sector. The government has banned FDI into this sector until the end of this year. However, this has not stopped MNCs to partner with franchises in India and open new stores. The model seems to be working fine as the locals run the day-to-day operations, whereas the franchisees take care of sourcing.
The Indian retail industry is moving fast - with the strategy based around different store formats, aggressive pursuit of first-mover advantage, rapid expansion in second-tier cities, and introduction of various metrics and scorecards to analyze consumer spending patterns. Even though there are concerns and challenges that need to be addressed, there are a lot of local players who have become big believers in this space. With a target turnover of INR 90,000 crore on an investment of INR 30,000 crore over the next five years, Mukesh Ambani has already made his move. And a lot of other Indian companies are following suit. What remains to be seen is how Indian players face competition from global retail powerhouses when they make an entry into India - an entry that is now only a question of time.
Hi Gagan,
Very nice article.
Regarding the reliance venture, ‘Reliance Fresh’ ,they have decided to go in as a dedicated grocery superstore.In Hyderabad, The efficiency of Reliance’s much talked about farm to folk supply chain is being put to test. This particular store is directly procuring from the farmers of Andhra Pradesh, Karnataka and Tamil Nadu giving it a quality and pricing advantage, something that Reliance hopes will fuel its success.
Next in line are different formats that will also house a pharmacy, and section for apparel and consumer durables.
And six months later, Reliance hopes to roll out its hypermarket format . It would be interesting to be see how successful this strategy turns out to be.
Hi Venkat,
Any update on how the Reliance initiative is going on in Hyderabad? What I have come to learn from secondary sources is that Reliance is finding the Hyderabad market a little challenging as of now. And the store is still struggling to pick up.
However, the direct procurement model is an interesting concept - something that Reliance can utilize to the fullest given its existing logistics and supply-chain network.
Even I am looking at the developments with a keen eye and waiting for something more concrete vis-a-vis company performance and results.
Hypermarket concept would still remain a ‘testing-the-waters’ case. Primarily because the concept is still to catch people’s fancy. Mumbai saw the launch of Hypermarket - one of the first attempts to target the top-end format in retail. I do not think that it is faring any better than a Spencer’s or Big Bazaar.
I still believe that the real action will start once the biggies come in. Just heard on the news about the Wal-Mart and Bharti strategic partnership. The game is heating up now :-).
Cheers,
Gagan
I was smiling this morning when i read the headline ‘Wall-Mart enters India with Bharti’ in the Business Standard. Talk about great timing for an article on your blog
Yes, Even I have visited Hypercity (which was launched by the Rahejas in the Hypermarket format)and not found it to be very different from Spencers or Big Bazaar. I do not have any numbers on how they are varing vis-a-vis each other in the same space. One thing is for sure though, Retail sector is definitely a sector to watch out for in the coming years.
I personally feel that we do have a huge market which would give these companies ample opportunities to capture market share in their respective domains. Also, since most of the products sold in these stores are low involvement products, I feel it would be a case of the ‘Early bird catches the worm’, more than any other thing. Retaining customers would prove to be the biggest challenge.
The sheer scale of these companies hints that they do have the economies of scale to provide competitive prices. Hence we can rule price wars out to an extent.
So this points towards lots of Customer Loyalty programs etc in the offing.
No updates on the reliance outlet in hyderabad yet, will update as and when i get any info.
Regards,
Venkat