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Challenges & Opportunities in Indian Retail Industry:

Challenges & Opportunities in Indian Retail Industry

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Agenda Retailing : An overview Indian retail The change factor FDI in Indian retailing Why FDI ? How FDI ? FDI in Indian retailing

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Retailing World’s largest private industry US$ 6.6 trillion sales annually Indian retailing Largest employer after agriculture - 8%* of population Highest outlet density in world Around 12 mn outlets Still evolving as an industry Long way to go An overview Retailing: An overview

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Wal-Mart Topmost global Fortune 500 company(3 Consecutive Years) Annual Sales of over US$ 250 bn India’s two largest retail player turnover around US$ 158 mn (Bata) and US$ 102 mn (Shoppers Stop) Fortune 100 9 Retailers Carrefour, Ahold, Home Depot, Kroger, Metro, Kmart-Sears, Target, Albertsons’ An overview Retailing: An overview

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Weekly Markets Village Fairs Melas Convenience Stores Mom and Pop/Kiranas PDS Outlets Khadi Stores Cooperatives Exclusive Brand Outlets Hyper/Super Markets Department Stores Shopping Malls Traditional/Pervasive Reach Government Supported Historic/Rural Reach Modern Formats/ International Evolution of Indian retail Source of Entertainment Neighborhood Stores/Convenience Availability/ Low Costs / Distribution Shopping Experience/Efficiency

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Informal retailing Sector Typically small retailers. Evasion of taxes Difficulty in enforcing tax collection mechanisms No monitoring of labor laws Formal Retailing Sector Typically large retailers Greater enforcement of taxation mechanisms High level of labor usage monitoring Indian retail Evolution of Indian retail

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Corporate Houses Tatas: Tata Trent RPG group: Food World, Health and Glow, etc ITC: Wills Life Style Rahejas(ShoppersStop), Hiranandani(Haiko), DLF(DT cinemas) etc. Dedicated brand outlets Nike, Reebok, Zodiac etc Multi-brand outlets Vijay Sales, Viveks etc Manufacturers/ Exporters Pantaloons, Bata, Weekender Indian retail Categories of Indian retail

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Modern Format retailers Supermarkets (Foodworld) Hypermarkets (Big Bazaar) Department Stores (S Stop) Specialty Chains (Ikea) Company Owned Company Operated Traditional Format Retailers Kiranas: Traditional Mom and Pop Stores Kiosks Street Markets Exclusive /Multiple Brand Outlets Indian retail Classifying Indian retail

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Hypermarket Big Bazaar Giants Shoprite Star Department store Lifestyle Pantaloons Pyramids Shoppers Stop Trent Entertainment Fame Adlabs Fun Republic Inox PVR Indian retailers Large Indian retailers

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Greater per capita income Increase in disposable income of middle class households 20.9%* growth in real disposable income in ’99-’03. Growing high and middle income population Growing at a pace of over 10%* per annum over last decade Affordability growth Falling interest rates Easier consumer credit Greater variety and quality at all price points Indian consumer The changing Indian consumer

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The urban consumer Getting exposed to international lifestyles Inclined to acquiring asset More discerning and demanding than ever No longer need-based shopping Shopping is a family experience Changing Mindset Increasing tendency to spend Post Liberalization children coming of age 100 mn 17-21 year olds*. Tend to spend freely. Greater levels of education Indian consumer The changing Indian consumer

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Low domestic competition Because of fragmented nature of industry Lack of exposure to global best practices Low entry barriers for unorganized retailing Moderate entry barriers for organized retailing Wholesale system under-invested leading to 20-40% wastage Non level playing field issues Wide differences in treatment of small and large retailers Industry Challenges Challenges in the Industry

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Real Estate Costs Supply Chain Inconsistency Poor Infrastructure Lack of Skilled Manpower issues Challenges……

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Market size Current market size is roughly US$ 286 bn* 96% of the 12 Million stores are less than 500 Sq. ft. Forecast Growth rate for the retailing industry is roughly 8.3% for 2003-2008 Sales from large format stores would rise by 24-49%** Formal and modern format retailing would enjoy rapid growth Anticipated growth Opportunities

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Growth determining factors Government Policy Infrastructure development GDP growth Employment generation and job creation In several new sunrise industries Implies greater purchasing power Growth factors Growth factors

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India ranked 1 st in the Global A.T Kearney Retail Development Index India Russia China Advantage India The Indian advantage

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THE SIZE OF THE OPPORTUNITY Products Total Retail Organised Organised Rs. Billion Retail Retail as % Rs. Billion of Total Food & Grocery 6422 50 1 Textiles & Apparel 980 185 19 Jewelry & Watches 554 30 5 Consumer durables 415 43 10 Pharmaceuticals 364 10 3 Home Solutions 351 32 9 Books, Music & Gifts 115 15 13 Others 1159 111 10 Total 10360 476 5

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Current Indian FDI Regime FDI not permitted in retail trade sector, except in: Private labels Hi-Tech items / items requiring specialized after sales service Medical and diagnostic items Items sourced from the Indian small sector (manufactured with technology provided by the foreign collaborator) For 2 year test marketing (simultaneous commencement of investment in manufacturing facility required) FDI in Retail not permitted FDI in Indian retailing

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Metro Group of Germany Cash-and-carry wholesale trading Proposal faced strong opposition Entities established prior to 1997 Allowed to continue with their existing foreign equity components. No FDI restrictions in the retail sector pre-1997 Foodworld 51:49 JV between RPG and Dairy Farm International, Leading food retailer in India now Mc Donalds Current FDI FDI in Indian retailing

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Franchise International company gives name and technology to local partner. Gets royalty in return In case master franchise is appointed for region or country, he has right to appoint local franchisees Nike, Pizza Hut, Tommy Hilfiger, Marks and Spencer, Mango Manufacturing Company sets up Indian arm for production Bata India. It also has right to retail in India How they are present International retailers in India: Strategies

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Distribution International company sets up local distribution office Supply products to Indian retailers to sell Also set up franchised outlets for brand Swarovski, Hugo Boss Wholesale trading Cash and Carry operations 100% FDI permitted Metro Cash n Carry How they are present International retailers in India: Strategies

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Improve competition Develop the market Greater level of exports due to increased sourcing by major players Sourcing by Wal-Mart from China improved multifold after FDI permitted in China Similar increase in sourcing observed for Metro in India Provides access to global markets for Indian producers Benefits of FDI Why FDI?

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Investment in technology Cold storage chains solve the perennial problem of wastage Greater investment in the food processing sector technology Better operations in production cycle and distribution Better lifestyle Greater level of wages paid by international players usually More product variety Newer product categories Economies of scale to help lower consumer price Increased purchasing capacity of consumers Benefits of FDI Why FDI?

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FDI should be allowed in stages Initial stages: 26% FDI Establishment Phase: 49% FDI Mature Phase: 100% FDI FDI policy No incentives needed to attract FDI Market size and potential are sufficient inducers No need for costly tax breaks, import duty exemptions, land and power subsidies, and other enticements How FDI ? How FDI ? 2 yrs 2 yrs 2 yrs

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Thank you