Editor’s note: India’s retail revolution is starting to take off. Speaking at the World Retail Congress in Barcelona, Spain, in April, the head of Bharti Enterprises, Rajan Bharti Mittal, said that India is seeing a “gold rush” in its fledgling retail industry. “India is ready for the retail experience and we must realize that India is a country with a young population. There are 720 million people below 35 years of age. There is a gold rush in Indian retailing—good, bad or indifferent, that’s where it is heading.” In this special multichannel report, Chain Store Age takes a look at the state of retailing in India. For additional photos, visit www.chainstoreage.com, where you can also download podcasts from two recent conferences in Mumbai and Delhi.
The global retailing giants are about to enter India. Finally. Wal-Mart Stores expects to open its first Indian store later this year in the northern part of the country. France’s Carrefour plans to enter India with a cash-and-carry next year and launch other formats in 2010. They are drawn to the extraordinary growth of organized Indian retailing. Total sales were $329 billion last year, and are expected to double by 2012, which would make India the world’s fastest-growing major retail market, with a compounded annual growth rate of 9.3%, according to MVI, the global retailing research consultancy. The growth is evident in India’s shopping center industry. Total retail mall stock doubled from 1 million sq. ft. in 2002 to 40 million sq. ft. in 2007, and is expected to reach 60 million sq. ft. by the end of 2008, according to Jones Lang LaSalle Meghraj.
Achieving retail success is especially complicated in India, however. As the world’s largest pluralistic democracy, with myriad cultures and 22 official languages, the nation actually is a conglomeration of discrete markets. India’s population, exceeding 1 billion people, makes many of these markets scalable opportunities. Successfully navigating them, however, requires knowledge and patience.
“I’m not in a hurry,” said Carrefour chairman Jose Luis Duran. “It has taken us 10 years to establish a strong brand name in China. It’s going to take the same thing in India.”
The promise and the challenge: The promise and the challenge of Indian retailing are most apparent in Gurgaon, a suburb south of Delhi.
Modern shopping malls line multi-lane highways, evoking Dallas or Atlanta, while farmers herd water buffalo on the shoulders of the roads, and tent encampments of construction workers fill nearby fields.
Gurgaon illustrates the daunting challenge of growing a successful business in a nation where three times the population of the United States lives in an area one-third the size, mostly in extreme poverty and without modern conveniences and infrastructure. And every aspect of retailing—from supply chain to store operations and staffing—requires special attention.
“A guy may be selling you a suit for 50,000 rupees [$1,000], which would be more than his one-year salary,” said Prasenjit Ray, founder and CEO of In-Store Consulting Services, based in New Delhi. “How can he sell you that suit with confidence?”
India’s own retailing chains have been working through these kinds of issues for several years. And most global players, with exceptions like Germany’s Metro, have taken a long time negotiating India’s protectionist regulations and shopping for suitable joint-venture partners. The No. 1 Indian chain, $1.5 billion Pantaloon, now operates more than 1,000 stores, including department stores, and discount and food outlets.
At the same time, Indian conglomerates, such as Reliance, a $27 billion petrochemical company, have expanded into retailing. With 422 hypermarkets and supermarkets, and sales of $358 million in 2007, Reliance is now India’s fifth-largest chain, according to MVI.
Transforming a country: For Reliance, organized retailing, and the infrastructure and jobs that it will provide, is India’s most powerful engine for lifting its people out of poverty. Indeed, this sense of national mission, which major Indian retailers share, may be their ultimate competitive advantage.
“The objective is to organize the retail business of the country, but equally to develop a business that delivers a significant benefit to the country,” said Gunender Kapur, president and CEO of Reliance’s retail division, who is focused on improving distribution and storage.
Similarly, Bharti Enterprises, Wal-Mart’s joint-venture partner, also is focused on infrastructure improvement.
“About 40% of the farmer’s fruits and vegetables now go to waste,” said Rajan Bharti Mittal, managing director of Bharti Enterprises. “It’s because from the farm to the shelf there is no warehousing or refrigerated trucking.”
Just as Bharti’s telecommunications division helped to rapidly connect a country that lacked significant telephone wiring, the Wal-Mart partnership should help improve India’s infrastructure. As required by Indian law, Bharti will run the Indian Wal-Mart stores 100%, but share the operation of the distribution and back-end functions fifty-fifty.
Rural India: “We have a very deep one-to-one engagement with the farmer to help improve practices,” said Rajesh Gupta, president of Hariyali Kisaan Bazaar, a retail subsidiary established five years ago by DSCL, a diversified agricultural and chemical company.
The company currently operates 60 stores of about 15,000 sq. ft., and 90 stores of 6,000 sq. ft.. They offer a wide range of merchandise including food, household goods, tools and appliances. In addition, the company offers extension courses in agriculture in an effort to produce better farmers and more valuable customers.
Infrastructure development in rural India may take 20 years, according to Harish Bahl, founder and CEO of Simile Interactive Technologies Group. The company is setting up Internet kiosks throughout India, in post offices and other established locations.
“With a virtual store,” said Bahl, “You can reach the most remote village.”
The changing consumer: Meanwhile, India remains a nation of small shopkeepers who enjoy a unique advantage.
“When new organizations come in, they need to set up cold storage and other infrastructure,” said Rajeev Karwal, director of Milagrow, a Gurgaon-based consultancy. “A small retailer with a cart of vegetables will have 10 different kinds of onions, at 10 different prices. And the housewife and the retailer know the price and why.”
In the cities, the transformation to organized retailing is well along. Indian consumers are finding more global brands, and Indian suppliers have introduced “more brands in the past two years than in the past 10 years,” according to Prasenjit Ray, the New Delhi consultant. He noted that with air-conditioned malls, shopping has become a form of family recreation.
“Shopping together is a form of happiness,” Ray added.
Credit-card use is increasing, too, in a society where only a few decades ago a family might save for five to 10 years to buy a car.
“Shoppers are adding newer categories into their basket,” said Ray. “It’s the result of the convergence of choice and the ability to pay.”
The ultimate impact of rising expectations and the availability of goods is not yet clear.
“We’ve questioned this for 20 years,” said Ranjan Kapur, India Country Manager for WPP, the global marketing communications firm. “Why is it that we don’t have a revolution? We believe in our karma, our fate. That’s in our DNA.”
Chain Store Age explores the state of retailing in India in a series of podcasts and pictures. You can find them by clicking on the "Retailing in India" banner ad at the bottom left of our homepage or you can access it here: http://www.chainstoreage.com/PodcastLanding.aspx.