Course Material- Growth of Organised Retail in India

Course Material

Growth of Organized Retail in India

Retail industry is basically that sector of the economy which is engaged in selling finished products to end consumers. Most of the goods sold are made by some third party though these days big retail chains have introduced their brand line as well which is known as private labels. As per the AT Kearney ranking, India is at number four in the list of thirty emerging countries for retail development.

Basically there are three kinds of retailers that are generally available –

• Organized Retail – These are owned by private or government and are based on some principles and procedures like Wal-Mart, Big Bazaar. Possess license to sell the product.
• Unorganized Retail – Owned by an individual and they are also based on some principles.
• Grey Market – Unauthorized small stores that are owned by an individual. They are not bound by any principles or rules as they are run illegally.

Organized retailers often many advantages which an unorganized store could not offer e.g. consumer now has a wider range of choices of goods, better shopping experience, more convenient and many other benefits. They also offer great discounts with some supermarkets offering more than 5% below MRP whereas unorganized stores generally sell products at MRP. The number of SKUs available is also much more than that available in unorganized stores and so there are less problems of stock out or no stock. The farmers have also benefited from organized retailing as they are in direct touch with the retailers and resulting in bypassing of the intermediaries who used to eat away the margin of both retailer and farmer. In a way they have helped in boosting the growth of other sectors which are related to them like agriculture, manufacturing etc. Companies are also in direct touch with the customer and so they have better awareness that which products are selling and which are consuming the shelf space. It has also enhanced the employment potential by providing direct employment to many people who are involved in many activities that take place during organized retailing.

In organized retail sector we generally have modern format stores which include supermarkets, hypermarkets, discount stores, departmental stores, shopping malls and similar kind of stores. While in unorganized sector we have small kirana stores which are the local shops that are owned and operated on a small scale generally in a limited space. Owners themselves operate it so it has the benefit of low operational costs. As they are in the near locality they have better understanding of customer requirements.

In India it was in 1995 when organized retail finally started taking shape when the Indian government had started relaxing policies and market liberalization was taking place. The sector has undoubtedly drawn benefit in that period because of the liberalization as the government is encouraging more and more FDIs into the country. At that time almost 90-95% of the retail sector was still unorganized in India. The sector continued to flourish encouraging many Indian industrialists to enter into organized retail sector.

The sector reached its peak growth in 2006 when consumers were more seeking organized retail format and there was greater exposure to foreign brands. The retail shopping districts started developing and more shopping centers, lifestyle malls and shopping complexes have emerged offering people shopping, entertainment and food chains at the same place. This concept first took shape in tier I cities but soon it spread into tier II and III cities as well. Many bigwigs have become popular in this industry including Big Bazaar, Reliance Fresh, Nilgiris, More and many others.

Right now the industry has reached its matured phase with growing Indian economy. Salary is expected to rise by an average of 13% and consumer spending is expected to increase by 12%. As per the emerging trends, the disposable income of people has increased over the time which is expected to grow further and they are spending more than earlier. There has been an increase in working population in the range of 19-60 years which is expected to reach 620 million in 2012. Even young people are purchasing more and have become specific about from where they are purchasing. At this point of time, organized retailers are focusing more on tier II and III cities where there is still scope of further growth. Retail companies are now emphasizing more on increasing their presence in the new emerging retail formats such as supermarkets, convenience stores, hypermarkets and specialty stores.

As per the Business Monitor International (BMI) India Retail Report, the total retail sales in India is expected to grow from US$ 395.96 billion in 2011 to US$ 785.12 billion by 2015. This is all due to the increase in earning and spending power of people and as a result many international companies including Wal-Mart are planning to enter into retailing in India which will boost the competition in the retail industry.

Some of the prominent organized retailers that we have in India are –

Nilgiris

It is a famous supermarket chain in South India established in 1905 by Muthuswamy Mudaliar. USP is selling of goods that are freshly produced, of superior quality and creates value for customer. It is the only major super market chain that sells its own products.

Foodworld

A chain of supermarket stores that is a division of Spencer & Co. Earlier it was called as Spencer’s Daily. Three aspects to which the company sticks to are stock turn, volumes and efficiency.

Reliance Fresh

A convenience store format owned by Reliance Industries and has about 560 outlets across the country. They sell fresh fruits and vegetables, staples, groceries, fresh juice, bars and dairy products.

More

A retail chain store operated by Aditya Birla Retail Ltd is the retail arm of Aditya Birla Group Company. It operates in two types of store formats namely supermarket and hypermarket. Currently, it has more than five hundred supermarkets and more than eight hypermarkets across the country.

Big Bazaar

A chain of hypermarket in India and it has 210 stores across 80 cities and towns. It offers a wide range of merchandise including fashion and apparels, food products, general merchandise, furniture, electronics, books, fast food and leisure and entertainment sections.