Indian retail market is estimated to be at ~$350 billion and organized retail accounts for 6% of the total market. So all the Biyani’s, Ambani’s and the Birla’s are sharing the 6% pie so far. With such a huge opportunity why would anybody not enter the retail market? Both domestic and foreign retail players are interested in investing in Indian retail story. The results have been mixed so far but there are trends if looked more closely.
Foreign Direct Investment is permitted only in cash-and-carry business of the retail space. No foreign investment is allowed in multi-brand retail stores. 51% investment is allowed in single brand retail stores. International Multi-brand retailers are allowed but only via the franchise route where the face should be of an Indian business house.
We are getting mixed signals from Indian organized retail probably indicates the mood of the Indian consumer. No one knows what’s in store for the future so let us hold up is one side. The other side is – people still got to drink, eat and bath. That confusion is prevalent among the major retail houses.
Not so good news
Subhiksha, which runs the retail stores across India, is battling for survival. It has negotiated its rentals in many cities but now it is planning to close more than half of its stores. UK retailer Argos is pulling out of India.
Reliance Retail has pulled out of cash and carry business because of the bleak outlook and they don’t want to burn any more cash. Its Reliance Fresh is not doing that well. Same is the case with Spencers and Aditya Birla group’s More.
Good news
Future Group’s Big Bazaar has bucked the trend though it is resorting to new ways to boost sales. It is trying to rent expensive clothes for special occasions. It is also in talks with CarreFour for a cash-and-carry set-up.
Mahindra and Mahindra group unlike their Xylo launch, has quietly entered the retail space with Mom & Me store. Bharti has collaborated with WalMart for a cash and carry business and has named its stores as BestPrice Modern Wholesale. Not sure if we need that big a name. BestPrice or BestPrice Wholesale would have done the trick. Modern in the name is a little outdated. But that is their choice.
Few entries and few exits so far. Since organized retail is pretty new in India, no body knows what really works. But there are few trends if we look closely.
- Big Bazaar is a hit. Which means their store format, which is a rip-off of Saravana Stores in Chennai, is something worth paying attention to.
- Small stores like the Subiksha format or the Reliance Fresh format did not work. The profitability is not there for that small a space.
- Good customer care. When I walk into a kirana store across the street, that guy makes an eye contact and asks what I want. That makes me feel good. I am not saying that the supermarkets should do to all the customers that walk their stores. If asked a good customer care is always a good way to increase reputation.
- Parking space or the lack of it. If you have such a big store and I am fighting for the parking space I would rather not come to your store and will find an alternative. I would go to a small store who delivers to my home. I don’t have to worry about parking and carrying the bags back to the car.
Those are my 4 cents for this hugely untapped market.
*Image credit.