Perspectives on India's Retail Industry
In a recent address at the National Retail Federation in New York, Microsoft CEO Satya Nadella remarked that by capturing the commercial intent and buying behaviour of consumers, retail industry is going to set the tone for not just for consumer experience but also the global economy in the coming decade. https://www.youtube.com/watch?v=vkSNW6CJN7Q&t=835s
As of FY end 2018-19 India's private consumption expenditure stood at $1.6 trillions which is 60% of India's GDP. Retail industry accounts for $857 billions out of the total private consumption expenditure. (Reference: D-Mart Investor's Presentation/Crisil Report Jan 2020/CEIC Data) Effectively, retail industry accounts for 25 to 30 % of India's GDP. Not just India, for most major economies retail industry accounts for a significant share of GDP.
Driven by technology and modernisation, the retail sector in India is at the cusp of evolution. Disruptions throughout the value chain – sourcing, manufacturing, transportation, procurement, warehousing and inventory, distribution, marketing and advertising, selling, logistics, delivery,after sales servicing, etc. – are driving this evolution, not just in retail but throughout the broader consumer business practices. (Unravelling the Indian Consumer Feb 2019, Deloitte)
In this context, India's retail industry is a fertile ground for big ticket retail majors - both domestic and foreign, specially given the fact that organised retail accounts for only 9 to 10% of the total retail industry.Close to 90% of the Indian retail industry is dominated by traditional mom and pop (kirana) stores. (Industry Research Report by CARE Aug 2019) One needs to watch out for this sector not just for its sheer economic size but also its political prominence.
The organized retail industry which is just 9 to 10% of the total retail market is further categorized into segments as shown in the figure below.
As shown in the figure below, the growth in organized retail (secondary axis) is expected to be much steeper (1.5x) than the traditional retail business. Many industry estimates expect organized retail to double in size from the $90 billions (FY 2019) in four to five years depending on the cyclicality of the economy. If the growth rate of overall retail is expected to be around 10 to 12%, organized retail is expected to grow at 20% in the next five to six years.
With increasing smart phone and internet penetration coupled with tech savvy urban consumers, the growth in e-retail is expected to be at least 30% per year for the next five to six years. Online retail is worth $20 billions in FY 2019 not even 3% of the total retail industry.
MAJOR PLAYERS IN ORGANIZED RETAIL
Some of the major players in organized retail in India and their revenues as of Mar 2019 are listed below. Reliance Retail is by far, the largest retailer in the country and D-Mart has shown consistent growth in the past few years.
MAJOR PLAYERS IN THE ONLINE RETAIL INDUSTRY IN INDIA
As stated earlier, online retail is the fastest growing segment of the retail industry with growth rates expected in excess of 30% per annum at least for the next five years. Some of the major e-commerce websites are listed (based on traffic) in the graph below. (https://disfold.com/top-e-commerce-sites-india/)
KEY TRENDS TO WATCH OUT FOR IN THE COMING DECADE
1. Consolidation and buyouts: In multi-brand retail, FDI is restricted to 49%, therefore, many foreign retail giants would prefer to enter organized retail through buyouts to avoid any regulatory hurdles. Also the local knowledge and insights provided by domestic players are invaluable for foreign investors eyeing Indian markets. Even within the domestic industry, consolidation is going to be the key to optimize on costs and maximize revenue generation per square foot. We can see a number of examples including Walmart buying out Flipkart, Amazon taking a 49% stake in Aditya Birla More Retail Chain along with Samara Capital, Goenka Group's Spencer's Retail buying Godrej's Nature Basket etc.
2. Phygital: No rivalry between brick and mortar and e-commerce platforms.'Phygital' is the future.
"Physical stores have their own advantages and nuances and digital has its own advantages,” Kishore Biyani CEO of Future Group said in New Delhi at a recent conference organized by Amazon. “Both have come in different eras and in another 3-4 years, it will become phygital,” referring to a retailing term visualises merger the two formats. “It has happened in the (other parts of the) world and it will happen faster in India.” Now Big Bazaar's 'Sabse Saste Din' are also available on amazon.in
(https://economictimes.indiatimes.com/industry/services/retail/kishore-biyani-sees-a-phygital-future-for-retail/articleshow/73315813.cms)
3. Data Analytics and Technology: As stated earlier, technology and data analytics are going to play a critical role in the evolution of global economies in general and retail in particular. Producers will have to adopt to the needs of evolving consumer data trends. By analyzing consumer data and trends in buying behaviour, one can evaluate the changing tastes and preferences, raising income levels, dietary patterns and health consciousness of consumers etc. Advertising strategy built around consumer buying habits is far more effective in earning revenues. Data usage and privacy issues will have to be handled by sovereign governments in a way that benefits consumers and doesn't suppress business interests. Technology is already playing a key role in bringing in efficiencies and streamlining operations through out the retail value chain.
4. Brand Building through Enhanced Consumer Experience: Building brand loyalty by way of enhanced consumer experience, both online and offline is the key for retailers. Millennials ( the new age cyber citizens!) account for 34% of India's population and they value consumer experience more than anything else. With the integration of technology, retailers across the world are trying out new ideas including personalized display at stores, AR/VR based shopping options, consumer alerts through blue tooth beacon devices while in stores, conversational commerce through voice activated assistance, inventory and supply chain management devices, battery operated shopping carts etc. (Deloitte Report, Unraveling the Indian Consumer Feb 2019) Subscription based revenue models are being increasingly used to lock in consumers and thereby revenue streams for years to come.
5. Traditional mom and pop stores are going to be at the center of e-commerce action: Although, unorganized retail is set to decline by at least 10% in the next four to five years, traditional mom and pop stores are going to be at the center of the e-tail revolution. Big companies like Reliance Retail have announced plans to tie up with small retailers in the next five years. (Refer to The Economic Times article - indias-ubiquitous-kirana-stores-are-finding-themselves-in-great-demand) In Bengaluru's HSR layout, retail firms like Metro are helping traditional kirana stores to ramp up and streamline their operations and consumer data. In the next few years, by integrating with these traditional outlets, e-commerce companies will be able to reduce their delivery timelines and provide better user services.
6. Largest Employers and impact on other industries in the value chain: Retail industry accounts for 10% of the total employment and trends in retail industry are going to shape up other industries through out the value chain and employment generation.
Notwithstanding, the current downturn in the economy, consumption expenditure is expected to bounce back in the coming quarters and the CAGR of retail industry as a whole would be around 10 to 12% in the next four to five years. Moreover, with a business friendly government at the centre, organized retail is set to attract higher investments both domestic and foreign.
As of FY end 2018-19 India's private consumption expenditure stood at $1.6 trillions which is 60% of India's GDP. Retail industry accounts for $857 billions out of the total private consumption expenditure. (Reference: D-Mart Investor's Presentation/Crisil Report Jan 2020/CEIC Data) Effectively, retail industry accounts for 25 to 30 % of India's GDP. Not just India, for most major economies retail industry accounts for a significant share of GDP.
Driven by technology and modernisation, the retail sector in India is at the cusp of evolution. Disruptions throughout the value chain – sourcing, manufacturing, transportation, procurement, warehousing and inventory, distribution, marketing and advertising, selling, logistics, delivery,after sales servicing, etc. – are driving this evolution, not just in retail but throughout the broader consumer business practices. (Unravelling the Indian Consumer Feb 2019, Deloitte)
In this context, India's retail industry is a fertile ground for big ticket retail majors - both domestic and foreign, specially given the fact that organised retail accounts for only 9 to 10% of the total retail industry.Close to 90% of the Indian retail industry is dominated by traditional mom and pop (kirana) stores. (Industry Research Report by CARE Aug 2019) One needs to watch out for this sector not just for its sheer economic size but also its political prominence.
The organized retail industry which is just 9 to 10% of the total retail market is further categorized into segments as shown in the figure below.
As shown in the figure below, the growth in organized retail (secondary axis) is expected to be much steeper (1.5x) than the traditional retail business. Many industry estimates expect organized retail to double in size from the $90 billions (FY 2019) in four to five years depending on the cyclicality of the economy. If the growth rate of overall retail is expected to be around 10 to 12%, organized retail is expected to grow at 20% in the next five to six years.
With increasing smart phone and internet penetration coupled with tech savvy urban consumers, the growth in e-retail is expected to be at least 30% per year for the next five to six years. Online retail is worth $20 billions in FY 2019 not even 3% of the total retail industry.
MAJOR PLAYERS IN ORGANIZED RETAIL
Some of the major players in organized retail in India and their revenues as of Mar 2019 are listed below. Reliance Retail is by far, the largest retailer in the country and D-Mart has shown consistent growth in the past few years.
MAJOR PLAYERS IN THE ONLINE RETAIL INDUSTRY IN INDIA
As stated earlier, online retail is the fastest growing segment of the retail industry with growth rates expected in excess of 30% per annum at least for the next five years. Some of the major e-commerce websites are listed (based on traffic) in the graph below. (https://disfold.com/top-e-commerce-sites-india/)KEY TRENDS TO WATCH OUT FOR IN THE COMING DECADE
1. Consolidation and buyouts: In multi-brand retail, FDI is restricted to 49%, therefore, many foreign retail giants would prefer to enter organized retail through buyouts to avoid any regulatory hurdles. Also the local knowledge and insights provided by domestic players are invaluable for foreign investors eyeing Indian markets. Even within the domestic industry, consolidation is going to be the key to optimize on costs and maximize revenue generation per square foot. We can see a number of examples including Walmart buying out Flipkart, Amazon taking a 49% stake in Aditya Birla More Retail Chain along with Samara Capital, Goenka Group's Spencer's Retail buying Godrej's Nature Basket etc.
2. Phygital: No rivalry between brick and mortar and e-commerce platforms.'Phygital' is the future.
"Physical stores have their own advantages and nuances and digital has its own advantages,” Kishore Biyani CEO of Future Group said in New Delhi at a recent conference organized by Amazon. “Both have come in different eras and in another 3-4 years, it will become phygital,” referring to a retailing term visualises merger the two formats. “It has happened in the (other parts of the) world and it will happen faster in India.” Now Big Bazaar's 'Sabse Saste Din' are also available on amazon.in
(https://economictimes.indiatimes.com/industry/services/retail/kishore-biyani-sees-a-phygital-future-for-retail/articleshow/73315813.cms)
3. Data Analytics and Technology: As stated earlier, technology and data analytics are going to play a critical role in the evolution of global economies in general and retail in particular. Producers will have to adopt to the needs of evolving consumer data trends. By analyzing consumer data and trends in buying behaviour, one can evaluate the changing tastes and preferences, raising income levels, dietary patterns and health consciousness of consumers etc. Advertising strategy built around consumer buying habits is far more effective in earning revenues. Data usage and privacy issues will have to be handled by sovereign governments in a way that benefits consumers and doesn't suppress business interests. Technology is already playing a key role in bringing in efficiencies and streamlining operations through out the retail value chain.
4. Brand Building through Enhanced Consumer Experience: Building brand loyalty by way of enhanced consumer experience, both online and offline is the key for retailers. Millennials ( the new age cyber citizens!) account for 34% of India's population and they value consumer experience more than anything else. With the integration of technology, retailers across the world are trying out new ideas including personalized display at stores, AR/VR based shopping options, consumer alerts through blue tooth beacon devices while in stores, conversational commerce through voice activated assistance, inventory and supply chain management devices, battery operated shopping carts etc. (Deloitte Report, Unraveling the Indian Consumer Feb 2019) Subscription based revenue models are being increasingly used to lock in consumers and thereby revenue streams for years to come.
5. Traditional mom and pop stores are going to be at the center of e-commerce action: Although, unorganized retail is set to decline by at least 10% in the next four to five years, traditional mom and pop stores are going to be at the center of the e-tail revolution. Big companies like Reliance Retail have announced plans to tie up with small retailers in the next five years. (Refer to The Economic Times article - indias-ubiquitous-kirana-stores-are-finding-themselves-in-great-demand) In Bengaluru's HSR layout, retail firms like Metro are helping traditional kirana stores to ramp up and streamline their operations and consumer data. In the next few years, by integrating with these traditional outlets, e-commerce companies will be able to reduce their delivery timelines and provide better user services.
Notwithstanding, the current downturn in the economy, consumption expenditure is expected to bounce back in the coming quarters and the CAGR of retail industry as a whole would be around 10 to 12% in the next four to five years. Moreover, with a business friendly government at the centre, organized retail is set to attract higher investments both domestic and foreign.
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