Indian Retail Sector Report May 2014

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Indian Retail Sector Report May 2014 For leading industry jobs, please visit India is the 5th largest retail market in the world. The country ranks fourth among the surveyed 30 countries in terms of global retail development. The current market size of Indian retail industry is about US$ 500 bn (Source: IBEF) and is expected to grow at the rate of 15-20% p.a. The retail industry is expected to increase to US$ 750-850 bn by 2015 (according to a report by Deloitte). Retailing has played a major role the world over in increasing productivity across a wide range of consumer goods and services. In the developed countries, the organised retail industry accounts for almost 80% of the total retail trade. In contrast, in India organised retail trade accounts for merely 8-10% of the total retail trade. This highlights a lot of scope for further penetration of organized retail in India. The sector can be broadly divided into two segments: Value retailing, which is typically a low margin-high volume business (primarily food and groceries) and Lifestyle retailing, a high margin-low volume business (apparel, footwear, etc). The sector is further divided into various categories, depending on the types of products offered. Food dominates market consumption with 60% share followed by fashion. The relatively low contribution of other categories indicates opportunity for organised retail growth in these segments, especially with India being one of the world's youngest markets. The organised retail segment in India is expected to account for 20 per cent of the overall retail market by 2020. Net retail sales in India are also quite significant among emerging and developed nations. Transition from traditional retail to organised retail is taking place due to changing consumer expectations, growing middle class, higher disposable income, preference for luxury goods, and change in the demographic mix, etc. The convenience of shopping with multiplicity of choice under one roof (Shop-in-Shop), and the increase of mall culture etc. are factors appreciated by the new generation. These factors are expected to drive organized retail growth in India over the long run. Indian Retail Sector Report May 2014

Transcript of Indian Retail Sector Report May 2014

  • RETAIL SECTOR IN INDIA India Sector Notes May 2014
  • For handpicked, premium jobs in the Retail industry, please visit 2 Table of Contents 01 02 03 04 Sector Overview Competitive Landscape Regulatory Framework Conclusions & Findings 05 Appendix
  • For handpicked, premium jobs in the Retail industry, please visit Retail Sector in India: At a glance 3 14th Rank Global Retail Development Index (GRDI) > USD 500 billion Total retail sales 8% Organized Retail Sector Penetration > 20% Growth In organized retail during 2012-2020
  • For handpicked, premium jobs in the Retail industry, please visit The retail sector in India can be classified in the following manner 4 Retail Sector Supermarket Hypermarket Specialty Store Cash & Carry Organised sector Unorganised sector Department Store Self-service store located in close proximity to residency area Product mix primarily comprises F&G with a miniscule share of personal products, apparels and home furnishings Average sq ft: 1,000 Self-service superstore, amalga mating a supermarket and a department store Product mix includes FMCG, apparels, h ome furnishing and electronics Average sq ft: 50,000 1,00,000 Stores catering to a particular product type (apparels, baby products, footwear, accessories, music , books or electronics) Average sq ft: 800 1,000 Retail outlet catering to the B2B sector This concept is based around self- service and bulk buying, and serves registered customers only Core customer groups are hotels, caterers, tra ders and other business professionals A lifestyle retailing format Amalgamation of specialty departments such as apparels, accessories, home furnishing, toys and personal care products. Larger share of apparel to the total product mix Average sq ft: 30,000 50,000 Small retailers comprising the local Kirana shops, owner- manned general stores, pharmacy stores, footwear shops, apparel shops, hand-cart hawkers, and pavement vendors, among others
  • For handpicked, premium jobs in the Retail industry, please visit Indian retail market grew at 9% CAGR to approximately USUSD 520 billion during 200812 5 TOTAL RETAIL MARKET TOTAL RETAIL MARKET SEGMENTATION (%) - 2012 278 321 368 424 518 2004 2006 2008 2010 2012 3.0% 3.0% 4.0% 5.0% 6.0% 8.0% 11.0% 60.0% C Electronics Pharmacy Jewellery Food service Telecom Apparel Others Food & Grocery Source: Images Group, FICCI, Deloitte, ICRIER, Aranca Analysis CAGR: 7.3% CAGR: 8.9% Total retail market size: USD 518 bliion (in USD billion) The Indian retail sector has consistently contributed around 1820% of the total GDP Growing private income and corresponding private consumption expenditure, rapid urbanisation as well as the entry of foreign players have been key growth enablers for the sector Food and grocery is the largest category within the retail sector, with 60% share, followed by apparel and telecom The high share can be ascribed to large number of dedicated grocery stores, hawkers/street vendors for fruits and vegetables and other co- operatives focusing on food and beverage retailing
  • For handpicked, premium jobs in the Retail industry, please visit Indias organized retail penetration is pegged at 8%; majority retail consumption is concentrated around few urban cities 6 15% 29% 11% 45% 100% Metros Mini Metros Tier 1 Tier 2 & below Total Stores GEOGRAPHIC DISTRIBUTION OF ORGANISED RETAIL (2012) 92% 8%Retail Size: USD 518 BN State Share of organized retail of Indias total OR* tax revenue (USD billion) Maharashtra 12% 0.4 AP 8% 0.27 UP 8% 0.27 Tamil Nadu 7.5% 0.25 Gujarat 7.5% 0.25 SHARE OF TOP STATES IN ORGANIZED RETAIL (2012) Urban population is the consumer of around 40% of the total retail market Tier 1 cities automatically become the largest retail consumers, as it has the majority (>60%) of the urban population Currently, the top 24 Indian cities contribute around USD 21 billion to the retail market, which corresponds to 56% of the total organised retail and 30% of the overall retail market Top eight cities of Mumbai, Kolkata, Delhi, Chennai, Bangalore, Hyderabad, Ahmedab ad and Pune account for around 45% of the total organised retail penetration (ORP)*OR = organized retail **Refer to appendix for breakdown of key cities by tierSource: Technopak, Corporate Catalyst of India Unorganized Organized
  • For handpicked, premium jobs in the Retail industry, please visit Organized Retail Penetration (ORP) has witnessed a positive growth trend 7 INDIA RETAIL: GROWING SHARE OF ORGANIZED RETAIL PENETRATION 9.2 13.2 19.1 28.4 41.4 3.3% 4.1% 5.2% 6.7% 8.0% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0 10 20 30 40 50 60 70 2004 2006 2008 2010 2012 ORP $ value ORP % Growth in organised retail has been consistent since 2004, and high growth has been witnessed, mainly since the past 23 years. Well-established chain of hypermarkets, supermarkets, department stores and other modern retail formats contributed to such a high level of ORP. Modern retail formats in India are gradually gaining prominence with changing consumer lifestyle and preferences. GROWTH IN VARIOUS FORMATS 2006 2011 40 300 2006 2011 2006 2011 2 30 2006 2011 Source: Technopak, Deloitte, E&Y, Aranca Analysis CAGR : 20.2% CAGR : 21.3% Supermarkets no of stores Hypermarkets no of stores Specialty no of stores Cash & Carry no of stores CAGR:52% CAGR:50% CAGR:72% CAGR:25% (in USD billion) 10,000 30,000 500 4,000
  • For handpicked, premium jobs in the Retail industry, please visit Apparel contributed the highest share to organised retail demand, followed by telecom and food & grocery 8 PENETRATION OF THE ORGANIZED SECTOR 8.3 1.7 2.5 2.9 3.3 4.6 4.6 13.7 Others Footwear Jewellery Food service C Electronics Food & Grocery Telecom Apparel ORP% 33% 11% 11% 8% 87% 6% 4% 20% Although apparel constitutes a miniscule share of the total retail market at 8%, it has a strong presence in organised retail (33%). Liberalisation of the FDI policy in favour of single-brand retail (100% FDI) and rising income levels leading to an increase in discretionary spending are factors that will fuel growth in this segment. Food & Grocery forms the largest segment in the total retail pie; however, its share in organised retail is merely 11%, indicating an attractive opportunity for existing as well as new players to expand and establish their presence. Gross margins in this segment are as low as 1015%. Therefore, adopting the right business model with respect to product mix, store location and store size are key elements deciding profitability. Source: Deloitte, Corporate Catalyst India (in USD billion, & % share)
  • For handpicked, premium jobs in the Retail industry, please visit Total retail market is expected to grow at 12% CAGR to USD 1.3 trillion during 2012 20; organized retail penetration may touch 20% 9 TOTAL RETAIL MARKET 518 869 1300 2012 2015F 2020F The total retail market is expected to more than double over the next 57 years, reaching a value in excess of USD1.3 trillion. Organised retail is a recent phenomenon in India, and the market is growing exponentially despite downturns, as economic growth brings more of the population under the consumer class. ORP of 8% is expected to grow about six times, from the current USD 40 billion to more than USD 250 billion, across categories and segments. About 4050% of the demand up to 2015 will come from Tier 1 cities. FDI, one of the key growth enablers, will increase tax revenues (e.g. in the form of VAT) nearly fivefold, from the current annual USD 3.4 billion to USD 16.2 billion by 2021. FDI by multinational food processing companies shot up to USD2.14 billion between April and October 2013, and continues to increase significantly. Improved supply chain & infrastructure in Tier 2 cities coupled with rapid growth in the retail mall space will lead to huge supply in organised retail formats. ORGANISED RETAIL MARKET CAGR : 18.8% CAGR : 8.4% 41 90 260 8% 10% 20% 0% 20% 40% 60% 80% 100% 0 50 100 150 200 250 300 2012 2015F 2020F ORP $ Bn ORP % CAGR : 29.5% CAGR : 23.6% (in USD billion) (in USD billion) Source: Technopak, Deloitte, E&Y, Aranca Analysis
  • For handpicked, premium jobs in the Retail industry, please visit Disposable income and favourable demographics may far outweigh barriers related to regulatory complexity and finance availability 10 Favourable demographics 70% of the 1.2 billion rural Indian population is a huge untapped market for the organised retail industry. The working age group 15-64 years constitutes ~65% of the total population the main driver for the consumer market going forward. Rising Income levels and consumption expenditure Indias per capita income (PCI) recorded a 11.66% CAGR between 2001-2011 (from $ 500 - $ 1,500). IMF forecasts a PCI of USD 2,450 (2017). Private final consumption expenditure (PFCE) to increase from $1,077 billion in 2012 to $ 2,046 billion in 2017. Changing consumer preferences Exposure to the western lifestyle is leading to a shift in consumer habits. The above trend along with rising incomes will create a market for newer offerings. Growing number of working women population As per the NSS 66th round survey, as on January 2010, work