We use cookies to give you the best experience possible. By continuing we’ll assume you’re on board with our cookie policy

A Comparative Study of Retailing in India Essay

Paper type: Essay

Words: 4615, Paragraphs: 49, Pages: 19

Sorry, but copying text is forbidden on this website!

or Listen to your own essay


According to AT Kearney, India’s retail industry comprises US$ 435 billion. It entails only 6 per cent of itself as organised retail segment as of 2010, according to Booz and Co (India) Pvt Ltd. Hence, there is a great potential to be explored by domestic and international players, especially after Cabinet’s decision to allow up to 51% foreign direct investment (FDI) in multi-brand retail sector and 100% FDI in single-brand retail. (Why India is a big market: refer page 23, Annexure) The Business Monitor International (BMI) India Retail Report for the fourth-quarter of 2011 forecasts that the total retail sales will grow from US$ 411.

28 billion in 2011 to US$ 804.06 billion by 2015. The report has underlined factors like economic growth, population expansion, increasing wealth of individuals and rapid construction of organized retail infrastructure as major drivers for the optimistic forecast figures. (Refer Annexure, fig 2) According to a research report named ‘Retail Sector in India’ by Research and Markets, Indian retail sector accounts for 22 per cent of the country’s gross domestic product (GDP) and contributes to 8 per cent of the total employment.

FDI in single-brand retail currently is 0.03% of cumulative FDI of around $149 billion from April 2000 to September 2011. The announcement is expected to generate 10 million jobs over three years, without impacting smaller and domestic retailers. FDI in retail will provide the farming community a new support by investing in good farming practices and providing them with better prices. The international players will bring a sophisticated front-end that will boost investment in infrastructure by retail players, third-party supply-chain companies and the government. This will improve efficiencies in the supply chain, cut wastage, increase efficiency and bring down consumer prices.

India has been ranked as the fourth most attractive nation for retail investment among 30 emerging markets by the US-based global management consulting firm, A T Kearney, in its Global Retail Development Index (GRDI) 2011. India’s MGR (Mass Grocery Retail) sector remains dominated by small-scale traditional retail outlets. All four key modern formats (supermarkets, hypermarkets, convenience and discount stores) are already present within India’s MGR market but these stores are largely operated by a handful of local retailers. Structure of India’s MGR market till 2010 (Estimated number of Outlets: fig3, Sales by Format: fig4) is given in Annexure. Collaborative model for international products — Joint ventures (JVs) are emerging as the preferred model for new entrants, wherein foreign players leverage the knowledge of the local player and focus on key issues such as quality, pricing, promotions and brand management. Key examples include the Bharti Group‘s JV with Wal-Mart for retail in the Indian market.

MGR sales growth for 2011 = +19.7%; compound annual average growth rate to 2015 = +17.6% (Refer Annexure Fig 5) Increased exposure to Western consumption habits has fuelled consumerism in developed and emerging Asia. Wealthy consumers in major towns and cities turn to modern formats in search of the convenience and quality that they now desire and can increasingly afford. A lot of international retailers are planning to enter and expand their operations in India after the reforms introduced in the FDI policy in retail sector, like Walmart, United Colors of Benetton (UCB), Da Milano.

According to a report by research firm CB Richard Ellis India, over 6 million square feet of retail mall space was added across India in the first six months of 2011 (Refer Annexure Fig 6); primarily due to aggressive expansion by organized retailers. The potential cities which are good for entering are given in Annexure Fig 7. Cumulative foreign direct investment (FDI) inflows in single-brand retail trading during April 2000 to June 2011 stood at US$ 69.26 million, according to the Department of Industrial Policy and Promotion (DIPP). There are a lot of entry modes to enter a country, here India. (Refer Annexure Fig 8) And also refer to the growth trend that was observed quarterly in India, last year. (Refer Annexure Fig 13)


“India is a price sensitive market and therefore we will be devising our strategy for her very carefully…Retailing is like a game of three dimensional chess where we operate as a local, regional and global player, so depending on the needs of the market we shall change our format and adapt.” – John B Menzer, President and CEO, Wal-Mart International. 50:50 joint venture: In India, Wal-Mart has a 50:50 joint venture with Bharti Enterprises in the wholesale cash-and-carry segment, since 2007, under the brand Best Price Modern Wholesale. Total retail units as of October 31, 2011: 9

Best Price Modern Wholesale 9
Associates: 3,372

These stores have been opened in Amritsar, Zirakpur (Near Chandigarh), Jalandhar, Kota, Bhopal, Ludhiana, Raipur and Indore. The JV in India expects to open 10 to 12 new Best Price Modern Wholesale stores and employ approximately 3,000 – 4,000 people by end of 2011. On 16 Sept’11, it opened its first Best Price Modern Wholesale cash-and-carry store at Nidamanuru, National Highway-5 in Vijayawada, Andhra Pradesh. New outlet will also have a “Mera Kirana” program sharing best practices such as various aspects of using low-cost modern techniques and processes such as assortment planning, layout and fixtures, displays, backroom, licenses, safe food handling, customer retention and value added services with small and medium retailers. On 30 Sept’11, it opened a new store format, “Easyday Hyper”, at Magnet Malls, Bhandup, Mumbai.

Currently, the company has 140 ‘easyday’ stores, 13 ‘easyday Market’ outlets and 1 ‘easyday Hyper’ store. Advantage of Wholesale Cash-and-Carry: These benefit retailers as it is a is a one-stop shop that meets the day-to-day needs of restaurant owners, hoteliers, caterers, fruit and vegetable resellers, kiranas, other retail store owners, offices and institutions. More than 90 percent of these goods and services are being sourced locally; thereby helping keep costs to a minimum, adding to the growth of the local economy and creating job opportunities, with the cash and carry store directly employing more than 200 local people.

A typical wholesale cash-and carry facility will stand between 50,000 and 100,000 square feet. The joint venture works with the existing supply chain infrastructure to help make it more efficient, thereby maximizing value for farmers and manufacturers and retailers. The supply chain operation supports farmers and small manufacturers who have limited infrastructure and distribution strength and help minimize wastage, particularly of fresh foods and vegetables. An efficient supply chain can play an important role in transforming farmers and small manufacturers into successful entrepreneurs. Technical Collaboration: Walmart provides certain technical support to Bharti Retail for its front-end retail venture where Bharti Retail requires critical retail technology and technical know-how. Walmart’s Direct Farm Program: Multinational retail giant, Wal-Mart’s Direct Farm Program in India is a partnership with 110 small and marginal farmers near Ludhiana in Punjab where it encourages cultivation of safe, high-quality, seasonal vegetables. Farmers are advised at every stage of cultivation by field agronomists.

Farmers learn about nursery management, transplanting, nutrient management, as well as harvest and post-harvest practices. Sourcing from India: Walmart has been sourcing a variety of products from suppliers in India for more than 20 years. Walmart’s office in Bangalore serves as Walmart’s Global Procurement (GP) hub for the sourcing of merchandise from India and Sri Lanka to Walmart stores and Sam’s Clubs globally. GP India also manages Global Procurement from Sri Lanka. Major categories sourced from India include home textiles (including towels, shower curtains, bath mats, etc.), apparel (including woven, knitwear and leather footwear), leather accessories, fine jewelry and house wares (like fine dining ware, home décor, etc). The main categories sourced from Sri Lanka are apparel, textiles and gifts. Launch of its 1st store in India, 2009: The reason for Wal-Mart’s entry in India was clear – The Indian middle class, on which it had been working for around two years.

Mom-and-pop stores (or the Kiryana stores) and traditional distribution networks dominated the Indian retail market. Wal-Mart’s first outlet was set to launch in the city of Amritsar, Punjab in North India. The first store air-conditioned and built over 50,000 sq. ft. was on the outskirts of the city, Amritsar. The store employed 200 locals and was likely create 500 indirect jobs. In the first few weeks itself, the company had managed to sign on close to 35,000 members. Training Center: Bharti Wal-Mart has opened a training centre in Delhi to bridge the gap between demand and supply of skilled manpower in modern retail. It will provide free retail sector-focussed vocational training to candidates.

A memorandum of agreement (MoA) was signed in this regard on July 22’11 between Bharti Wal-Mart and the Delhi government’s Department of Training and Technical Education. Bharti-Walmart plans to invest over USD 15 mn in Andhra Pradesh this year and impact lives of 25,000 women through multiple initiatives by 2016, it has already created more than 2,000 job-ready women in 3 years through Bharti Walmart Training Centres. Walmart Labs in Bangalore: In addition to its R&D centre in the Silicon Valley, Wal-Mart plans to set up another facility in Bangalore, India (expected to be set up by Dec 2011) with about 100 developers to work on technologies and solutions for Wal-Mart’s global e-commerce business.


The Benetton Group, with brands such as UCB, Sisley and Playlife, has a presence in 120 countries. It has network of around 6,000 stores. India has a local production of their collection too. Almost 100 per cent of the products are sourced from India. The product line remains uniform geographically. At present Benetton has over 425 franchised stores in India (since 1991) and the number is likely to double in five years. Now it is also focusing on smaller cities and towns given the growth in brand awareness and disposable income levels. “Even if FDI in single brand retail is opened up, we will continue to operate like a wholesaler and follow the franchise route,” Mr Mohanty (Benetton India MD) said. It has launched its first Concept store in Connaught Place.

Stores are an important communication platform for Benetton as it is here that we showcase the depth of our brand offering to the customers. The launch of the new store strengthens Benetton’s presence in the Indian market. Global brands work everywhere. Consumers currently are very global as they are accepting products that have global appeal. In fact, it has always positioned itself as a colorful brand which has worked wonders for the Indian market. Also it focuses more on consumer experience like store ambience and window merchandising rather than advertising.

Almost 40% of our budget is spent on that. However, it is now looking at in-film placements as the next branding strategy. (It has already tied up with an upcoming John Abraham movie 1-800-Love.) It is looking forward to being clothing partners of programmes or events, which are true to their product. Recently, this Italian casual wear brand opened an outlet at Magneto Mall, Raipur. Spread over an area of 1,000 sq ft, the store stocks a range of clothes and accessories for men and women. The retailer has a revenue-sharing model with the mall.


Da Milano, the international luxury brand with its range of premium leather goods and accessories is synonymous to precision, craftsmanship and exclusivity. Da Milano imports 70% of its leather and accessories from Italy for its leather goods retailed in India. It has 2 state of the art company owned manufacturing units at Nalagarh in Himachal Pradesh equipped with the latest and most advanced machinery. They have a highly skilled workforce operating under the guidance of Italian technicians. They also have an exclusive tannery near Chennai in TN where leather produced is benchmarked to the latest process technology. By September’11, it has 32 signature Da Milano stores across the country. It recently opened 5 flagship stores in Maharashtra. The brand’s presence can be seen in 10 cities – Delhi, Gurgaon, Noida, Jaipur, Chandigarh, Mumbai, Pune, Hyderabad, Chennai and Kolkata.

Recently it opened its showroom at Terminal 3 of Indira Gandhi International Airport in Delhi. The store is sprawled over 850sq.ft and is embellished with all-glass frontage. The appealing visual merchandising of the store also includes an off white backdrop, wooden shelves, soft green wall paper, illuminating marble flooring etc, and is done to entice passers-by and draw footfall. The luxury brand could soon be seen announcing the launch of two of its sub brands Rosso Brunello and Da Milano Home. While the former will offer premium hi fashion foot wears for men and women, the latter will be offering leather accessories for home and office. Rosso Brunello foot wears will be made available at select Da Milano exclusive stores, while Da Milano Home and Office accessories would be retailed at Da Milano stores.

Well, a lot of scope is there in India as compared to other countries in the world as the organized retail penetration level is only around 5% as compared to 85% in USA, 80% in France and 20% in China. (Refer Annexure Fig 9)


Price issue: In India the majority of retail outlets sell products at maximum retail price (MRP), which are administered by the government and printed on each item by manufacturers. Thus, there is minimal price competition among the various store formats. The arrival of International retailers, with vast sourcing networks, may eradicate the importance of government-imposed MRP, as these are likely to focus strongly on low prices as a competitive tool and as a means of encouraging new consumers to try the modern concept. Poor Infrastructure: The road infrastructure is poor and federal and state tax laws are complex, which make cross-state transportation difficult. India’s transport networks/highways, rural infrastructure certainly need investment. Bharti has announced to invest INR 125bn in agriculture and supply chain. It will also invest on specific distribution and transportation storage solutions (ie refrigerated trucks and logistical initiatives, such as electronic product tracking).

The relatively slow pace of MGR growth in India can be largely attributed to two key factors: (1) massive income inequalities and (2) tough FDI regulations Labour displacement issue in India: The entry of International retailers with efficient systems will destroy the traditional retail sector, making people’s requirement at minimum in these new retail stores. JOB losing fear: If we assume 40 mn adults in the retail sector, it would translate into around 160 mn dependents using a 1:4 dependency ratio. These people are unlikely suitable for other areas of work either. Thus, there is a need to enact new laws to check the prolific expansion of the new foreign malls and hypermarkets, like China, Malaysia and Thailand. (Refer Annexure Fig 12 to see the Asia Pacific Retail Sales by % share) Change in Retail FDI policy: On November 24th the coalition government, led by the Congress party, said that in cities of over 1m folk, foreign firms could now own 51% of “multi-brand” retailers, such as supermarkets (up from zero), and 100% of single-brand chains (up from 51%).

Multi-brand foreign chains, such as Walmart and Tesco, must operate as joint ventures, of which they may now own up to 51%, and may operate only in cities of 1m people or more. The new reform is timely. Growth has dipped below 7%. The rupee is weak, investors are nervous. But still, the government needs to lift confidence, and organized retail could work. (Refer to Annexure Fig 10 to see the Indian economic activity showing the nominal GDP and GDP per capita.) Political issues: The FDI reform is too controversial to be enacted. The main opposition party, the BJP, which enjoys the support of millions of stallholders, is doing its best to whip up anger. Many Indians feel an emotional attachment to little kirana stores, and fret that foreign invaders will destroy them.

Indian states are not obliged to follow the FDI reform. Many may refuse to liberalize foreign ownership on their territory. Standard Chartered Bank, reckons that of 53 cities with over 1m people, 28 are run by politicians who say they will block the reform. India’s leftist parties had called for a nationwide strike on Dec. 1 in solidarity with the Confederation of All India Traders, who are among the most vocal opponents of full FDI in retail. The BJP leader Uma Bharti publicly threatened to set fire to any Walmart that opens. Fragmented Market: The retail shops are very fragmented with only very few supermarkets and no dominant chain. Farming is also fragmented. A rickety legal system makes it hard to enforce contracts. Under the latest FDI reform, foreign-controlled shops will have to buy a chunk of their processed and manufactured goods from small firms, which may add to their costs. High Land prices in India: Foreign retailers will have to find affordable land in packed and expensive cities. Western luxury-goods firms may be able to tolerate extortionate rents for central locations.

Some may prosper with a few out-of-town stores that people visit infrequently, spending lots. But general retailers need both cheap land and proximity to their customers—not an easy mix. People’s habits: Indians are in the habit of shopping for their fruits and vegetables almost every day which get the customer into the shop every day, and chances are she’ll buy something extra. Building a Walmart-style supply chain of fruits and vegetables requires a lot of investment in improving the productivity and quality of farmers. E.g. showing a tomato farmer how to improve his yields by using wooden stakes for his plants. That farmer doesn’t have to sell his tomatoes to Walmart, but when he sees that he can get a better price, he often does. To woo farmers away from the system they are used to — selling produce at the local mandi, or market, at a price dictated by traders — Walmart has set itself a target of increasing farmers’ incomes by 20% over five years.

Farmer’s Income: By law, farmers are required to sell their produce only to approved mandis and have to pay the mandi taxes. (Walmart has to pay the mandi tax even when farmers sell to them.) They travel for hours to get here, and then take whatever price the wholesale buyer is willing to give. The buyers don’t inspect the produce and offer better prices for better quality; they just sell the 100-kg sacks of vegetables to another set of middlemen, who break it into smaller lots that eventually find their way to vegetable vendors and small retailers. By the time it reaches the consumer, that produce will have been marked up by three to four times or more, but nearly all of that goes to the middlemen, not the farmer. Meanwhile, about 30% of the produce also spoils along the way for lack of cold storage, contributing to India’s soaring food inflation. Distribution issue: remains a major challenge to retail expansion. India’s infrastructure is a lot inadequate.

A 500km road journey can take as much as 24 hours, owing to poor road conditions, congestion and toll booths. Preference for Kirana/local retailers (cheap price offered): According to ASSOCHAM’s survey 2010, in which it interviewed 5000 shoppers in various cities in India, kirana stores (mom and pop stores) and local retailers were the preferred destination for shoppers as compared to shopping malls. The survey found that goods were less expensive (as much as 25%) in local kirana stores as compared to big shopping malls with more variety and affordable options with sustainable quality at a negotiable price (reduced margins) Walmart’s strict union policy: The company’s clearly defined anti-union policy aiming at preventing its work force from gaining collective bargaining power can result in increased wages.

Low overhead costs: Small retailers in India already operate with such low overhead costs (by relying on informal labor and making minimal investment in any technology, even refrigeration) that it’s hard for Walmart to compete with them. (India’s traders have, however, invested in their relationships with state and local politicians, who count on their support around election time.) Elsewhere, Walmart may have pioneered the use of low-cost retail labor; in India, the cost of labor in retail is already about as low as it can get.


Issuing Loyalty cards: Keeping customers loyal is a problem retailers often grapple with. Over the last decade, Indian companies that are focusing on acquiring and retaining customers have become aggressive about giving out loyalty cards. As a result, 42 percent of Indians in the SEC A, B and C categories are now part of at least one loyalty program in India’s $4 billion-a-year loyalty market. (This figure includes the market for gifts, which a lot of companies use as a surrogate for loyalty programs.) Loyalty is seen as the number one tool that allows retailers to access data on customer tastes and preferences. Pearson: conducted an extensive customer research through Colloquy, its research arm: only 20 percent of Indians in the SEC A, B and C categories are loyal to a particular brand. Offer a better deal and they are more than willing to shift.

Improving Infrastructure: Tesco is planning to work with Tata’s Star Bazaar hypermarket business on a franchise basis, providing expertise and technical support in return for a fee to the fast-expanding network. Star Bazaar stores, potentially meaning that Tesco-branded private-label goods could appear in consumer retail outlets in India. It provides employment for some 3,000 local workers at its global service centre in Bangalore. More Partnership: Wal-Mart is also considering a partnership with Indian counterpart Future Group to strengthen its presence in India. Also, Walmart is on an expanding spree in India and wants to cover maximum areas in India, even the interior regions.

Recently, it opened a new store format, easyday Hyper, at Magnet Malls, Bhandup, Mumbai. This is Bharti Retail’s first store in West India. Spread over 60,000 sq.ft., the outlet stocks over 20,000 products displaying 475 new items, including personal care products, stationery, household articles, hosiery items and daily-need groceries. Introduction of Innovative ideas: Walmart is also introducing innovating ideas to differentiate it from other retailers, like the recently opened store also has a section called ‘Baby World.’ Currently, the company has 140 ‘easyday’ stores, 13 ‘easyday Market’ outlets and 1 ‘easyday Hyper’ store.

Cluster approach strategy: Walmart follows a cluster approach strategy and initially largely focused on Punjab, although it opened stores in other places also. It has covered the four big markets (in Punjab) already. Price settling: Government of India should introduce the concept for the organized retail by setting a minimum price for a commodity, below which a retail store cannot sale the product. This should be done to avoid the occurrence of monopoly of a retailer in the country. Personalized Offer to Customer: The current retailers in India should take an advantage of the prior knowledge of the customer requirement and customer nature in India. They should provide customized deals and service to them, so that they may retain the old customers even on the opening up of new international retail stores whose service is not personalized.


Clearly, once the equity caps on foreign investment are lifted, the India MGR sector will witness tremendous flows of investment from global retailers, which leads to our projection of 155.6% in MGR sales to 2015. Its retail market is forecast to nearly double to $850 billion by 2020. (Refer to Annexure Fig 11 to see the forecast for 2020 in terms of sales in organized and unorganized retail market.) Also, when a retailer (say Walmart) enters a new market, a lot depends on the kind of a partner it has. As Bharti itself has ambitions to be a major retail powerhouse in India, thus there is a strategic conflict between their interests. As, sooner or later India will permit foreign retailers to have direct equity ownership in India, then what will Walmart be left holding? Bharti has retail ambitions, thus it will want to buy Walmart’s shares, rather than sell. Bharti-Walmart stores are branded BestPrice, and not with Walmart’s name.

Thus, Walmart could have thought of India as a portfolio of regional markets and work with smaller regional partners. It’s hard for the local kiryana stores, etc. to have much bargaining power or have national ambitions. They would have been happy to brand them as Walmart and when regulations change, Walmart would be able to buy them out. Walmart India probably will invest in a joint venture with Kishore Biyani-led Future Group soon. The report is not confirmed yet. On Tuesday (March 29’11), a leading business daily in India reported that senior executives of Future Group and Walmart had met at least five times in four months, raising possibilities of an alliance. More important, the debate over Walmart’s effect on retail employment misses a larger point. In India, the majority of the population is employed in agriculture, and Indian farmers stand to gain a lot from greater investment by anyone — foreign or domestic — in the supply chain that brings food from the field to the consumer. CRISIL, a research firm, reckons the reform could attract up to $3 billion of foreign investment over five years—welcome, but not nearly enough to fund India’s current-account deficit or transform the industry.

India’s consumer-goods firms, among its most profitable, have thrived in the era of backward retailing and supply chains, but are betting on gradual change. The biggest, Hindustan Unilever, has seconded staff to stores in America and Britain to learn how they work. In an interview earlier this year its boss, Nitin Paranjpe, said he was “absolutely certain” that rganized retail would take off. But he reckoned it would take a decade to capture a quarter of the market. Entering a market as big and complex as India’s is a big bet, even for experienced international retailers. Success is by no means guaranteed: citing example of China, where Tesco’s Chinese operations are only breaking even though they have been in the country for seven years. Walmart is doing better, but this was helped by its takeover of Trustmart, a Taiwanese supermarket.

Carrefour and Auchan, two French supermarket chains, are doing best, because they adapted more than their rivals to the taste of the Chinese and their shopping preferences, says Ben Cavender at China Market Research in Shanghai. Carrefour, for instance, introduced what is known as “wet markets” in most of its outlets: open food markets that sell live animals. To be successful in India, Walmart, Carrefour and Tesco will need to give their local managers a lot of autonomy to adapt their stores. India boasts more than 20 official languages, three major religions and many, very different culinary traditions.

Big Bazaar, one of the few Indian hypermarket chains, shows how far such adaptation will have to go. Instead of copying the narrow aisles in Western stores, designed for individual shoppers with carts, the firm has packed its stores with clusters through which shoppers have to navigate. This recreates the organised chaos Indians know from shopping in real bazaars: bumping into people, chatting and eating. All these international retail shops offer a wider variety and larger quantity of some items, but lacked the personal touch. They do not have the quality of personalized touch that a normal Kiryana store offers to its customers, thus it will take a long way to establish the retail market in India, but the wait is for the final say by the government of India.



FDI in India’s Retail Sector More Bad than Good? – By Mohan Guruswamy, Kamal Sharma, Jeevan Prakash Mohanty, Thomas J. Korah


http://business.in.com/article/web-special/loyalty-networks-poised-to-enter-indian-market/30972/1#ixzz1fpikaw00 http://www.ibef.org/download/Retail_270111.pdf
http://retail.franchiseindia.com/interviews/Debutant/Bagging-profits-59/ Issue 37 September 2011: http://www.dnb.co.in/Ind_cursorpdf/Industry_Cursor_September_2011.pdf http://www.ramms.co.in/admin/application/source/files/news/39_RRN-Sept%202011.pdf FDI in retail: MNC retailers to select partners with suitable capabilities: Economic Times By Paresh Parekh, Tax Partner, Ernst & Young

How to cite this page

Choose cite format:

A Comparative Study of Retailing in India. (2016, Oct 03). Retrieved from https://studymoose.com/a-comparative-study-of-retailing-in-india-essay

Is Your Deadline Too Short? Let Professionals Help You

Get Help

Our customer support team is available Monday-Friday 9am-5pm EST. If you contact us after hours, we'll get back to you in 24 hours or less.

By clicking "Send Message", you agree to our terms of service and privacy policy. We'll occasionally send you account related and promo emails.
No results found for “ image
Try Our service

Hi, I am Sara from Studymoose

Hi there, would you like to get such a paper? How about receiving a customized one? Click to learn more https://goo.gl/CYf83b


Hi, I am Sara from Studymoose

Hi there, would you like to get such a paper? How about receiving a customized one? Click to learn more https://goo.gl/CYf83b


Your Answer is very helpful for Us
Thank you a lot!