Changing Paradigms in Retailing Sector: An Overview


By

Mr. A.K. Mohideen
Asst. Professor (Finance)
Department of Management Studies
Vignan Institute of Information and Technology
VIsakhapatnam
 


INTRODUCTION:

By the turn of the 21st century, the face of the Indian retailing industry had changed significantly.  The retailing industry, which, until the early 1990's was dominated by the unorganized sector, witnessed a rapid growth in the organized sector with the entry of corporate groups such as Reliance, Tata, RPG, ITC and Bennett, Coleman & Company into the retailing market.

According to analysts, the retail industry in India is all set for the most exciting phase in the 21st century. Reportedly in 2004 alone about 12million sq feet space was occupied by the organized retail industry, and by the end of 2006 is expected to grow to 40 million sq feet. The overall size of the retail market in India at present is estimated at 5,88,000 crore    of which, unorganized market is worth rs 5,83,000 crore and the share of organized market is calculated at Rs. 35000 crore, and it will create 50000 jobs a year in the next 5 years.

The organized retail sector is expected to grow at a higher rate than GDP growth in the next five years driven by changing lifestyles, strong income growth and favorable demographic patterns, says KPMG report titled 'Consumer Market in India'.

The structure of retailing is developing rapidly with Shopping Malls becoming increasingly common in large cities, and development plans being projected at establishing 150 new shopping malls by 2008.

According to a survey the annual growth of department stores has been estimated at 24%, which is faster than overall retail, and supermarket have taken an increased share of general food and grocery trade over last two decades. The food and beverages segment is an emerging growth area. Similarly the gems and jewellery market is a key emerging area with significant potential. While Indians continue to shop with unbranded jewellery stores, the organized sector is offering branded solutions to the demand for quality and value, as consumers move away form traditional retail settings reliant on family retailers. Gemstones and jewellery represents the most significant segment of Indian retailing, accounting for a high proportion of total retail spent, and also representing a growing global retailing operations as Indian retail chains begin to expand into high value markets in the west Asia, Europe and the US.

The emergence of new segments also resulted in new store formats, including hyper marts, large supermarkets (3,000 – 5,000 sq ft), mini supermarkets (1,000 – 2,000 sq ft), convenience stores (750 – 1000 sq ft) and discount/shopping/grocer. The major changes took place in food retailing, book retailing, life style retailing, coffee parlors, vending machines and beauty and health care retailing. 

A.T.Kearney has estimated India's retail market at $202.6 billion, which is expected to grow at a compounded 30% over the next five years.

* In 2003-04 organized retailing, which has an annual growth rate of 8.5%, swept past the Rs 200 billion mark a figure that appears quite small if one were to compare the extent of the total market.

* Organized retail at present comprises merely 2% of the total market in India.

* The share of modern retail is likely to grow from its current 2% to 15-20 % over the next decade analysts feel.

* Further the number of households earnings moiré than Rs 150000 p.a  to 30million today and is expected to grow to 80million by 2007.

* Additionally financial institutions are encouraging such ventures. ICICI has recently sanctioned term loans to Vivek & Co a mega retailer in Chennai to meet their expansion plans.

* Very shortly the market will also witness IPO's for some these Retail Ventures.

* No wonder a heavy weight like the reliance group is planning to do a wal-mart in India.

In the next couple of years India will see at least two Indian retail businesses attaining the magic figure of Rs. 1000 crore in sales. Several others are accepted to attain a critical mass as growth in the industry picks up momentum. This will be driven by two key factors:

1) Availability of quality real estate and mall management practices

2) Consumer preference for shopping in new environs.

Food Retailing Segment:

The Food World (FW) supermarket chain has been one of the pioneers in organized food retailing in India.  Before FW entered the food retailing market, it carried out an extensive survey in consumer attitude towards retailing.  An important finding of the survey was that in terms of overall satisfaction, traditional Indian grocery stores scored 5 – 6 on a 10-point scale.  FW believed that this was largely due to the absence of organized retailing and low brand proliferation.  The company thus decided to offer people a pleasant shopping experience and work towards making grocery shopping less cumbersome.  The main challenge for FW was to alter the existing mindset of Indians with respect to price and value and add excitement to grocery shopping.

On the basis of the above information, FW defined its objective as: "To offer the Indian housewife the freedom to choose from a wide range of products at a convenient location in a clean, bright, and functional ambience without a price penalty."

Initially, the target markets were identified as neighbourhoods that had at least 4,000 households with an average monthly income of more than Rs. 4,000.  For this kind of customer base, FW needed to start operations in a metropolitan city.  Considering the fact that the cost of real estate was low in Southern India, FW chose Chennai, Hyderabad and Bangalore as initial locations for setting up FW stores.

FW adopted a self – service format for its stores, which typically had around 4500 sq ft of selling space.  The designing of the stores was given special attention and a uniform look was adopted for all the stores.  The colors red and yellow (as used in the FW logo) were used liberally while designing the stores.  To give the outlets an up market look, the interiors were kept completely visible to the public by using huge glass panes for the frontage.  The interiors were kept brightly lit and emphasis was given to creating a clean, pleasant ambience.  All the outlets were air – conditioned and played popular music continuously.  All this was done with the objective of providing an enjoyable and refreshing shopping experience to customers.

The merchandise primarily comprised groceries, personal care products, kitchenware and tableware.  Over the years, this list was expanded to include music, magazines and a few other product categories to cater to a wider customer base.  Every item in the store was marked individually with both price and bar codes.  Separate payment counters were set up for people planning to pay through credit/debit cards and for people buying only 3 – 5 items.

FW also entered into alliances with the fast food major, Pizzas Corner and the satellite radio broadcasting company, World Space.  While Pizza Corner sold pizzas from FW outlets.  World space displayed and sold its services and products at the stores.  Such tie – ups and promotional exercise have become a routine feature for FW.

Retailing of Lifestyle Products segment:

Shopper's Stop Limited (SSL) is the pioneer in India's organized retail revolution.  SSL redefined the concept of 'shopping' by making efforts to provide the Indian consumers with an international shopping experience.  In 1991, SSL set up its first outlet in Mumbai, Maharashtra, with a floor space of around 4,000 sq ft.  Since then, SSL has established its stores in all major cities in India with store space ranging from 18,000 sq ft to 60,000 sq ft.

SSL stores provide a complete and in – depth range of fashion and lifestyle products and accessories to meet the lifestyle pattern of every shopper.  Around 85% of SSL's merchandise is branded and it stocks more than 150 national and international brands.

Within a short period, SSL emerged as the largest single retailer for Levis, Pepe, Lee, Arrow, Zodiac, Reebok, Nike, Parker, Ray Ban, Swatch, Chambor, Revlon, Lego, Mattel and many other leading brands.  The company closely monitored the movement of all brands, and if any brand failed to meet customer expectations, it was phased out.  SSL also launched a range of private labels like Life, Kashish and Karrot in the premium classic, value classic and value fashion segments.  A team of designers were recruited from India's premier fashion design institutes to develop private labels.

Earlier, Indian customers were used to shopping for their apparel and accessories at various shops (as no shops offered all the products at one place), which paid little or no attention to the ambience or the comfort of their customers.  SSL, apart from offering a complete range of garments and accessories, included central air – conditioning, impeccably maintained trial rooms, beautiful rest rooms, play area for children, large car parking, in – store café, and other services such as alterations, goods exchanged without any questions and gift wrapping.

As a part of differentiating its product offerings from that of other major lifestyle stores such as Life Style and Globus, SSL also began conducting many events and promotion campaigns to combine entertainment with shopping.  These included the 101 – day Seven Wonders of the World Festival, Surprise Sale, Salon Streets, and Men in Vogue, Great Store Robbery, Campus Stoppers and Valentine Promotion.  One of the major events offered by SSL, which attracts hoards of customers, is Parikrama a crafts fare aimed at showcasing he diverse ethnic arts and traditions in India. 

Coffee Parlors

Barista and Café Coffee Day:

Being a traditional tea consuming country, the average coffee consumption in India was quite low at 10 cups per person annually.  However, in the late 1990s, a silent coffee revolution was sweeping urban India.  Coffee drinking was increasingly becoming a statement of the young and upwardly mobile Indians.  Coffee bars, an unheard concept till the mid 1990s had become big business.

There was a transition from the conventional and outdated coffee house to more sophisticated and trendy coffee bar chains like Barista, Café Coffee Day, Qwiky's and Café Nescafe.  By the turn of 20th century, nontraditional coffee retailing outlets like coffee bar chains, coffee vending machines and specialty coffee powder shops succeeded in making coffee one of the most desirable beverages in urban India.  The coffee parlors were an instant hit across all major metros and cities in India, as they offered an entirely new experience to customers.

Barista entered the Indian coffee retailing market in 2000 and decided to position itself as a lifestyle brand.  The company targeted the premium segment youth, as it realized that it wasn't only coffee that its target segment was looking form, but also for a place to hang around comfortably, where they could be themselves and do whatever they wanted, such as reading a book, writing a letter, or simply chilling out.  Hence, it recreated the ambience and experience of the typical Italian neighborhood espresso bars in India, with bright, trendy and comfortable interiors.  It promoted a social and interactive environment, where one can play games like chess and scrabble, read books, listen to music, enjoy arts, surf the Net and sip an Espresso Italiano, or Iced Café Mocha.  Fun posters, message boards and TV screens with music videos, all set the right mood.  An open kitchen behind the bar enables one to watch the coffee actually being made.

To ensure superior quality of its product offerings, Barista used only top grade Arabica beans to make coffee and also invited brew masters from Italy to create new blends.  The employee orientation program at Barista specially focused on enabling the team to understand and avoid the attitudes and behaviors in traditional restaurants that restrain customer from being himself/herself.

Since 2002, as a part of differentiating its services, Barista began offering Italian food at its outlets and also entered into tie – ups with Planet M, Crossword and Ebony to set up Espresso Corners at these places.  During this period, to expand the reach of its services, the company also opened outlets in banks (ABN – Amro), movie theaters (PVR in Delhi), offices (HSBC and GE), airports and in hotels.

Vending Machines

Nescafe, Cadbury E-Cuba and Tata Tea:

Nestle popularized the coffee kiosk concept in India, where it offered coffee through its vending machines. Nestle installed hundreds of Nescafe kiosks at places such as shopping malls, cinema halls, food centers and office buildings. Its vending machines came in different sizes and styles to match the needs of consumers at different locations. For instance Nestlé's high capacity multitask vending machines provided snacks, drinks and confectionery items. The kiosk model enabled consumers to have hot coffee instantly, whether they were shopping or at office, just by the click of buttons. Most offices buy the Nescafe vending machines to provide their employees with free coffee.

Cadbury India, with the help of telecommunications companies – BPL Mobile and E-Cuba India, launched chocolate vending machine operated by mobile handsets in select corporate and congregation points in Mumbai.

Since 2002 the concept of vending machines to retail has picked up momentum in India. The Tata were the first in India to establish vending machines for tea, followed by HLL 'Taj Mahal' and Lipton vending machines and coca-cola international tea brand 'Georgia'vending machines. These vending machines were placed at many strategic places such as airports, railways stations, shopping malls and complexes, restaurants and food outlets.

Beauty and Healthcare retailing segment:

The Shahnaz Hussian group founded and led by Shahnaz Hussian has been one of the pioneers of organized beauty care retailing in India. The group offers exclusive salon treatment geared to individual needs as well as a number of commercial formulations for the treatment of specific problems like acne, pimples, pigmentation, dehydration, apopecia etc., it employs about 4200 people in 650 salons spread across 104 countries with a strong presence in Asia, US and the Middle east.

The group formulates and markets over 400 products for all age groups and for a variety of beauty and health problems or needs. The group sophisticated R&D units develop the products and put them through stringent quality control tests. These products are environment friendly and no testing is done on animals. All the products offered by the group are entirely natural and carry the guarantee of purity and safety.

Conclusion:

The retail sector in India is witnessing a huge revamping exercise as traditional markets make a way for new formats such as departmental stores, hypermarkets, supermarkets and specialty stores. Western style malls have begun appearing in metros and second-rung cities which introduced the Indian consumer to a shopping experience like never before. Rated the fifth most attractive emerging retail market, India is being seen as a potential goldmine. It has been ranked 2nd in Global Retail Development Index of 30 developing countries drawn up by A.T.Kearney. Government of India has also opened the door for the retailing giants to enter into the markets. Many foreign investors are also showing keen interest to enter into the Indian market. With the flow of FDI, retail sector will have to see a many changes in the coming years.

References:

1. K.Radhakrishnan, "Organized Retailing", Praxis-Business line, January 2003, pp44-49.
2. "Harnessing Retail Opportunities", Indian Management, April 2003 p-3.
3. Sindhu J Bhattacharya, "The writing on the Mall", Catalyst, Business Line, March 10,2005.
4. "Retailing", A&M, December15, 1999.
5. "Indian Retail New Face ", www.eretailbiz.com, December 2002.
6. Sinha Prabhakar, "Early gains for retail players", The Times of India, September,2003
7. www.retailyatra.com
8. www.agencyfaqs.com
9. www.businessworld.com
10. www.financialexpress.com
11. www.pantaloon.com
12. www.indiainfoline.com
13. www.thehindubusinessline.com
14. www.financialexpress.com

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ABSTRACT

By the turn of the 21st century the face of the Indian retailing industry had changed significantly. The retailing industry which until the early 1990's was dominated by the unorganized sector, witnessed a rapid growth in the organized sector with the entry of corporate groups such as Reliance, Tata, ITC, RPG, B & C, Pantaloons, Arvind Mills into the retailing market.

With the liberalization and growth of the Indian economy since the early 90's the Indian customers witnessed an increasing exposure to new domestic and foreign products through different media, such as television and the Internet. The Indian retail industry is expected to grow by 25 percent that is more than the growth rate of GDP of India. The total retail marketing in India amounts upto Rs. 5,88,000 crores of which organized sectors estimated to about Rs. 35,000 crores by the end of Dec, 2005. Rapid growth in the retailing industry is due to increased availability of retail space; rapid urbanization and qualified manpower boosted the organized retailing sector.

The paper examines the changing paradigm in the Indian retailing industry at the turn of the 21st century, mainly driven by the growth of organized retailing sector and increased personal consumption of customers on account of rising incomes, increased nuclear families and double income families. This paper focuses on emerging paradigms in the retail industry in the areas of Food Retailing segment, Lifestyle product segments, coffee parlours, beauty and healthcare retailing segment.
 


Mr. A.K. Mohideen
Asst. Professor (Finance)
Department of Management Studies
Vignan Institute of Information and Technology
VIsakhapatnam
 

Source: E-mail December 4, 2007

          

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