Perspectives on Retailing in India & Rural Marketing

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This post is part of a series of posts on Retailing in India and Rural Marketing. keep coming back for updates!

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By the year 2011, 1200 hypermarkets and 3000 supermarkets would function across India. Retail, which will be rapidly transforming the Indian landscape during this period, would be attracting an investment of as much as US $ 25 billion, more than 12 times that was invested during the last one decade. Most of this growth is estimated to come from greater than 1000 tier II towns of India.[1] In fact, Indian retail has elaborate plans for smaller cities and towns, several reasons, as indicated below have been cited for this.

Striking features of Indian Retail[2]

• At Subhiksha, 40 per cent of revenues and space come from cities that are not state capitals.
• At Vishal Megamart, 80 per cent of revenues come from tier II and III cities
• Around 70-75 per cent of visitors end up buying from retail outlets in smaller places, whereas, in large cities, it is around 50-55 per cent
• Retail Operations in smaller cities result in extra 3 – 4 percent margin

Retail Outlook[3] (US$ Billion)

 

While these are familiar statistics, which one encounters frequently in news dailies and popular writings, there are enough motives to believe that retail growth projections will be fructified within time if not before. Several reasons, notably liberalized economy, easier availability of goods etc have been assigned to all the developments that we are witnessing today. Yet still, it is the India growth story and the way it impinges upon us in form of income, consumption and demand of goods and services that is the raison d' être for such trends.

The India Growth Story

Strong macroeconomic fundamentals combined with vigorous growth define the first decade of the Indian economy in twenty first century. An exceptional growth rate of nearly 9 per cent, which surpassed expectations on most counts, reflects a robust macroeconomic scenario. Investor friendly climate and innumerable domestic opportunities makes India an attractive investment hedge. This distinctly upbeat confidence is further reinforced by an investment upsurge across sectors in the economy.

The transformation of the Indian economy synonymous with the hallowed Hindu Rate of Growth to the new land of opportunities, though almost a dream run, has been brought about by the robust performance of the industry and services sector, which together contributed more than four fifth to the nation’s GDP in fiscal 2007, with their share standing at 26.4 and 55.1 per cent respectively. Agriculture, with a share of 18.5 per cent in 2006-07 accounts for remaining of the GDP.

These developments consequently are being reflected in the rising per capita income, which has been growing at an impressive rate. The per capita income, which stands at $797 during fiscal 07, has nearly doubled since the start of this decade (at $460 in 2001-02). At the end of the current fiscal year 2007-08 the per capita income is expected to rise to $1000.[4] It is further expected to double in nine years[5] if the current rate of GDP growth is at least sustained if not surpassed. As a result the disposable income, which is growing at 10 to 12 per cent[6] is having profound impact on the demand for consumables and makes India a huge and growing market.

Retail Scenario In India[7]

One can contend that such projections predominantly refer to the urban marketing potential; rather rural India would be affected in insignificant terms. In fact, some believe that organized retail’s attraction with rural India has been slow. As has been indicated previously, organized retail is fervently trying to expand its reach beyond metros, but barring a few, is limited to tier II and III cities.

Retail sector in India is estimated at US $ 280 billion[8] and organized retail, which forms a meager 5 percent of the retail pie (US$ 14 billion), is poised for a huge growth in coming years.[9] Besides increasing disposable incomes, as cited above, the other factor that drives this growth is the potentially strong rural consumer market.[10] In another independent analysis, Technopak[11] has estimated the absolute size of Indian retail market at around US$ 324 billion with rural-urban split ratio of 55:45, pegging rural market at around US$ 178 billion. Technopak’s previous analysis[12] states that rural market consumes as much as 53 percent of FMCG and 59 percent of durables in India.

While the figures on market size and growth potential vary depending on the source one refers to, there is one thing that cannot be ignored, which is, the large untapped potential of rural markets and which the organized players are trying to tap in their different ways. These claims can be viewed in the context of emerging employment, income and consumption patterns in rural areas.

Continued with the II installment here & III post here (will open in new window)

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[1] India Retail Report 2007
[2] Bigger growth: smaller towns next stop for organized retail, The Mint, December 27, 2007
[3] Technopak retail Outlook, October 2007, Volume I
[4] “Per Capita Income May Rise to $1000”; Economic Times, November 5, 2007
[5] Eleventh Five Year Plan (2007 – 2012); Volume I: Inclusive Growth; December 2007
[6] Dr Ajay Dua, India Retail Report 2007
[7] Winning with Intelligent Supply Chains, Ernst & Young, 2007
[8] Ernst & Young, 2007
[9] Planning Commission, Government of India
[10] Ernst & Young, 2007
[11] Technopak retail Outlook, October 2007, Volume I
[12] “Growing Rural Retail”, Financial Express, November 25, 2006