India- A Growth Engine
India a country which was once known as Golden bird, is again on a flight. There was bad times and good times but the fact is, now we are back on the track. India always faced competition from China from the beginning of world economy. According to Maddison’s calculation, in 1000 AD both the nations contributed 50.5% of world GDP. In 1600 AD, China’s contribution was 29% while India’s contribution was 23%.
Source: Angus Maddison, The WORLD ECONOMY, Paris: OECD Quoted in Robins, The corporation that changed the world
Later both the countries took a new shape, they were squeezed out due to colonial intervention but engine started again.
Socialism shaped the principle economic and social policies of the Indian government after independence until 1990s. In 1991, India implemented economic reforms and the country witnessed a major turn around
In 2014, India’s contribution was 2.60% and China’s contribution is 13.40%. The things to be seen closely is the growth rate. In 2017 where world economy is growing at the rate of 3.5%, India’s GDP growth rate is 7.2% in 2017, while China’s is 6.6%.
Who can drive the growth engine in India?
Indian retail sector is one of the booming sector but it is dominated by unorganized retail which contributes to 93% of the retail, which is equivalent to Rs17 Trillion.
Currently the focus of all organized retailers is to focus on the urban centres and convenient clusters within it like picking the low hanging fruits. With all their fanfare, they have been able to register only 7% contribution to the overall retail in the last 15 years. Unorganised retail on the other hand is still the back bone of the overall retailing in India.
The Power of Unorganized Retail Sector
Today there are 12 to 15 million retail outlets in India at an estimated potential of US$ 534 Billion. It also provides for the socio economic well-being of the society by providing employment to 8% of the total employment (AT Kearney &Assocham).
In the last 5 years it had a CAGR of 12 to 15% which is much higher than the growth rate of GDP in the respective period. The projected CAGR for the next 3 to 4 years is 12 to13%. All this goes to show that the consumption lead retail growth in India is there to stay.
Challenges with unorganised retail sector
- In urban centres unorganized sector faces the biggest challenges. They are losing substantial business in certain categories of products and brands due to the invasion by modern retail of which e-tail is a subset. The unorganized sector with its network reach as its core competency, shall continue to do well in the food and groceries categories, which constitute a good 67%of the retail business and in terms of money value appx US$ 350 billion. This significantly large amount of the business is drawing the attention of supermarkets and e-tailers. However their growth is constrained by the following:
- Consumers at the bottom of the pyramid are more careful in their buying behavior, as they need to synchronise the quality and quantities of their purchases with their monthly earning & budget.
Where to head? – Success and failures of large scale organized retail in India
Many MNCs have come and gone but very few succeeded. Companies such as Walmart, Carrefour & Tesco have done enough research from their back offices only to realise that even if FDI norms are made easier in India, it is not going to be an easy task for them to crack the Indian consumer in the organized large scale retail format.
Metro cash & Carry has done a commendable job in identifying the unorganized B2B sector way back in 2001. They have 20 stores on the cash & carry model for B2B.This model is now being replicated by Walmart through their Best Price outlets for the B2B segment.
Failure of Subhikasha
Subhikasha started off in Chennai by opening small (not more than 1500 sf) stores retailing food and groceries. Retailing at below market prices, using a low cost approach (eg. Non‐AC stores), helped the company succeed in its initial years, opening 150 stores in Tamil Nadu by 2006.
Downfall of the company began in 2006-07 when it took up an aggressive scale up plan to pan Indian level. They opened a staggering 1400 stores across the country in less than two years. Store formats were altered to include other items like mobile phones on their shelves to offer a ‘one‐stop’ shop to the customer
New stores failed to take off and the company was faced with the unprecedented slowdown at the end of 2008.
What Next? Can the problems can be solved?
In India has nearly 13 to 14 million retail outletsthat cater to the 1.251 bn consumers in a vast spread of 3.287 mnsq km, (US 9.857, China 9.597) But only 4% of these outlets are larger than 500 sft in size. For every 1000 population India has around 11 outlets. It offers to 8% of the employment. These are typically family owned stores which are lacking the skill sets to improve the scale of operation. These small stores of less than 500 sft, contribute to approximately 96% of the unorganized business which is a whopping US$ 441 billion perannum. Hence the sector needs an immediate dose of developmental programs in every aspect of retailing.
Following steps are required in this area:
- Development of entrepreneurs through quality education in retailing
- Work upon Store layout plan & Improvement
- Adoption of visual merchandising
- Global Retail Index 2015 by AT Kearney
- TSMG Report (Tata Strategic Management Group ) 2015
- Role of educational programs in enabling the unorganized Retail sector to sustain the current challenges of retailing in India, Research Paper by Prof JB Shetty
- Retail Mantra
By: Manu Sharma