Indian Organized Retailing: An Overview


By

Dr. Amit Kumar Dwivedi
Lecturer in Management
(Coordinator PGDM)
Babu Banarsi Das National Institute of Technology & Management
Lucknow

Punit Kumar Dwivedi
Research Scholar
Department of Commerce
University of Lucknow, UP.
 


Introduction - World wide Retailing:

 The emergence of Retail in India is cause for success of Indian organized Retail & Marketing. With the help of modern management techniques we will become the specialist Retailers in future. We are knowing that the relationship between the Retailer & customer is very close than other chains of distribution.

India is a nation of shopkeepers. We can see more than 12 million retail outlets in India, and India has highest density of retail outlets in the world. Retail Industry in India is at present estimated to be more than US $ 250 billion. On that part of organized retailing is estimated 3.5% i.e. $ 7.47 billion. In future by the year 2010 the vision of Industry is to attain the goal which is estimated US $ 23 billion in organized retail. 

Comparison between Asia's two big economies:

If we are comparing the growth of retail in India as compare to China we will find that China has more growth than India. In the year 1996 the per capita GDP of China was US$ 675 and it increased US$ 434 in year 2003 i.e. in the years 2003 the contribution of retailing in GDP per capita of China was US$ 1109. But in India, in the year 2005 it was only US$ 710. We can say that in 1996-97 (or in 90's the position of retail market in China was very strong than Indian Retail market.  

If we are taking as base the size of retail market in India it was only US$ 215 billion in 2005 but in China it was US$ 225 billion in 1996 & US$ 400 billion in 2003. It means the status of India's size of retail market is not very matured as compare to China.

The share of organized trade in retaining in India was quite more than 4% in 2005, but it was between 7-8% in 1996 and 17% in 2003 in China.

At present USA is biggest retail market with 85% share of organized trade in retailing at the second step. There is Malaysia with 55%, Thailand with 40%, Brazil with 35%, Russia with 33%, Indonesia with 30%, Poland with 20%, China with 17% & then India with 4% only.

Special Issue: Reliance fresh   Vs   ITC's e-Choupal

As a part of the retail plans, reliance has unveiled yet another format of outlets. This time the Chain stores cater to the life time segment by offering wellness products. The outlets branded as reliance wellness, will vend a complete range of product targeted at wellness of customers and also offer additional services to the customers.

The reliance wellness is the fifth project of stores from reliance retail. The group has already introduced other plans including

1) Reliance Fresh
2) Reliance Digital 
3) Reliance Mart &
4) Reliance Trends

ITC's e-Choupal are rural oriented and they are allowing the companies to purchase crops from the formers directly. The formers are getting the market price of produce which they can access from the connected connections at the ITC's outlets. So the companies getting raw materials directly and they are paying good to them at very low cost. Now the formers are not in the mood to sell their crops to rural agents like wholesalers or retailers.

If we are compare ITC with Reliance we will find that the Reliance fresh has an urban trend. It is selling it's products in city areas only. They are purchasing crops from villages and selling to urban people.

If we are looking towards the present status of ITC's e-Choupal presently it is running it's business more than 9 states of India. At present nearly 65 thousand e-Choupal installation working in 38,500 villages covering 5-10 villages each.

The current status of Reliance retail as compare to ITC's e-Choupal is very week. It has only 250 fresh outlets and it's several outlets has been closed down specially in UP and Orissa because of wrong business decision. Now a days there is very big conflict between the retail outlets and pure Indian retailers. They are fighting for their survival.

Reliance Fresh Retail

The Reliance retail is 100% subsidiary of Reliance Industry Ltd. On Oct 28th unveiled Reliance fresh, the first of it's multi format retail foray involving an investment of Rs. 25 Crores. The Reliance fresh is the companies brand for neighborhood fresh food outlets. It is selling kitchen equipments as well as edible oils. The plans of Reliance retail is also to stand and run the field of  Hyper Market, Super Market, Discount Stores, Departmental Stores, Convenience Stores and Specialty Stores.

The Reliance fresh mart chain is 25,000 Crores venture of RIL & It has plan to add more stores across the different regions of India and they want to become India's foot print by the year 2011.

What they will sell?

The Reliance fresh is selling and will sell fresh fruits and vegetables, fresh juice bars, Dairy items, staples, Groceries and also they will sport a separate enclosure and supply chains for non vegetarian products.

How much employment they are generating?

The Reliance fresh stores would provide directly employment to 5.5 Lakh young people of India and indirect job opportunity to one million people according to the statements given by company. The company has also plan to train students and housewives in customer care and quality service for part time job.

Current position in Retail Industry

Reliance fresh currently selling through company owned stores. At present they are selling for $ 8 billion in India. Estimation of industry sales that the countries retail business is worth Rs. 13,50,000 Crores. This stands a chance to blossom to $ 4.27 billion in the next four years. Organized retail accounts for just over Rs. 35,000 Crores. The Reliance fresh bid to tap the potential for organized retail in India.

ITC's e-Choupal Retail

ITC realized that as for as India's agriculture is concerned their first phase of project consisted of sourcing grains like Wheat, Soya etc. directly from formers but ITC has now turned to horticulture produce. The company has entered this space directly because the grain sourcing business is facing an imminent problem of decreasing return to scale. It won't be able to increase grain sourcing continuously like it did in past few years.

The Choupal fresh is the retail initiative which is present in all three states (Maharashtra, A.P., Chandigarh) where it is piloting this project from, will receive a bulk of fresh products on the daily basis as well as Big-Bazar, which is entered into a sourcing contract with ITC.

Advantage

A big advantage that ITC would have from this horticulture phase is the higher output per hectare in horticulture. Soya harvest do not exceed more than one tonnes per hectare while wheat yields are 3-4 tones for hectare, fruits and vegetables yield is between 10-15 tones per hectare. Of the targeted 1,00,000 villages ITC wants to extend the e-Choupals project to another 40,000 villages that it has cover for the purpose of grain sourcing.

Problems against Indian Formers and Retailers

1) Contract forming:  It is very dangerous tradition for the Indian agriculture. There is much possibilities of imbalance production of agricultural produce.

2) Outlets in Villages: Opening of village outlets or rural outlets is another problem for Indian traditional retailers and formers.              

3) High Prices: There is another problem related to price. The competitive fixation of price is another hurdle in the path of Indian formers. 

4) Monopoly: The customization of retail industry in certain business houses will not good in future for the Indian economy as well as Indian small retailers.

Prospects

*
The Govt. has to fix the standard prices for all agricultural produces.

* The Govt. has to Ban on opening of retail outlets in villages i.e. rural area.

* The Govt. has to provide security to Indian formers and specially to Indian small retailers.

* Contract Forming: The contract forming creates bureaucratic environment between retailers and formers, where formers have to bear and follow all the orders given by big house retailers. It means the formers will dominated by retailers and after forming contract they will loose their rights and independency.   

Conclusion:

Industry trends for retail sector indicate that organized retailing has major impact in controlling inflation. The big organized retailers are able to control the inflation by purchase directly from producers at good prices.

There is possibility of more FDI for the retail sector which will help the Indian farmers, producers with different financing modes. If there is more foreign direct investment for the retail sector automatically there will be agricultural reform   in the agricultural sector & we will get more production from agricultural sector.

But the customization of retail Industry in certain business houses is not fair for the Indian economy. The contract forming is another dangerous aspect by which the retail business houses like Reliance, ITC, etc can directly put control over Indian agricultural system and in future it will be very dangerous for the Indian economy. The rates are low as compare to Indian small retailers because the big houses have good financial back support and they can run their retail business in loss also. But after when they will stable in market they can increase the prices when they need by the effect of their monopoly in retail market.

The fixation of price of the product is another important aspect. The Govt. has to fix the appropriate & fair prices for the commodity. The control Govt. is also very essential otherwise there will be more fluctuations in prices and as well as demand & supply of the products that will also cause the inflation in feature & sure.

In conclusion we can say that the retail market in India offers an opportunity for a large player to build a large retail business. But in case of small Indian retailers now it becomes a war for living. There is very big competition among big business houses & small Indian retailers. Let us see who will stand in market.
 


Dr. Amit Kumar Dwivedi
Lecturer in Management
(Coordinator PGDM)
Babu Banarsi Das National Institute of Technology & Management
Lucknow

Punit Kumar Dwivedi
Research Scholar
Department of Commerce
University of Lucknow, UP.
 

Source: E-mail February 25, 2008

          

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