2013: Interesting Times ahead for Indian Retail

The evolution and growth of the Indian retail sector has had many twists in the last decade. From a boom to bust, the industry witnessed it all! We saw mall developers going all out to launch their projects but then we also saw malls shutting shops as well. The highlight of 2012 remained around FDI and GST. Where the issue of FDI has been resolved, GST implementation remains pending. Ankur Bisen, vice president and head- retail and consumer products, Technopak Advisors shares with us retail trends that we shall come across in 2013

While, the retail market opportunity in India, surged from USD 120 billion in 2001 to an estimated USD 490 billion in 2012. It is further projected that this will rise to USD 810 billion by 2020. The share of corporatized retail, has managed to reach a mere ~7 per cent in 2012 (Table 1). Outlook2
Though growth of retail coupled with policy announcements on FDI in retail has given mixed signals; there are certain retail trends that can easily be spotted.

1. Kirana stores will thrive and grow
The possible impact of easing FDI in India has been on many Indian minds of late; of principal concern is the shift between organized and unorganized modes of retail. It has been vehemently argued that the entry of international multi-brand retailers will wipe out indigenous retail formats – specifically the neighborhood stores, or kiranas. However, we believe that these kiranas will continue to be successful, if only due to the fact that they offer a flexibility and convenience that international retailers, lacking an in-depth knowledge of the average Indian consumer, will be hard to match.

It can be observed that kiranas cater to a customer segment whose purchases are largely need-based. Further, these smaller stores are capable of offering even single/ low-value items right at their customer’s doorstep. The mind-boggling retail density statistic – 15 shops per 1000 population in India compared to 1 shop per 1000 population in the developed world, explains how this high degree of customization is made possible. Further, the development of high-rise housing societies and colonies has given this retail format a new avenue for growth, with each society providing space for such a retailer who is often also flexible in terms of payment – customers can maintain some amount of periodic credit.

2. E-tailing will find its footing and grow
The e-tailing revolution, although a relatively late arrival on the Indian scene, has picked up steam primarily on the back of price discounts. While the discounting model may not last, the habit of buying online will certainly gain traction in a large segment of urban and semi-urban consumers. E-tail opportunity in 2021 is pegged at US$ 76 bn (Table 2).

Outlook1

Manifold growth of e-tail in the next decade will largely be due to the convergence of multiple factors that will enable the creation of an ecosystem for the take-off of e-tailing in India. From the demand perspective, some of the enabling factors will include Internet access via broadband or high speed mobile networks, the availability and penetration of affordable smartphones and tablets, and the creation of a sizeable consumption class that will be short for time for shopping through brick-and-mortar formats. From the constraints perspective, the lack of access to affordable real estate will be become the biggest enabler for the take-off of e-tailing in India.

While lower Internet penetration and higher cost of customer acquisition is still a hurdle, the growing acceptance of online retailing across many product categories is the beginning to change the shopping habits of urban India. The impression that online retail is useful only for specific categories like travel and ticketing is passé, and customers now acknowledge that there is hardly any product category that isn’t sold through the Internet. With technology assisting this transition, even apparel and personal care products are being purchased online. From the e-tailer’s perspective, the real challenge is to supplement their offerings with better and more secure purchasing interfaces, try-and-buy retail models and optimizing logistics, especially product delivery.

3. Casual dining out will continue to gain ground
Quick Service Restaurants, or QSRs, appear to be the next paradigm in terms of format, largely driven on the one hand by retailers’ need to innovate and, on the other hand, by the ever-increasing time-poverty on the part of customers. This segment already has seen a high degree of penetration by both domestic and international players who are now competing solely in terms of menu range, prices and exotic/ combination offerings. International chains, for instance, choose to blend in local flavors with signature products as a means of both tempting customers and justifying higher-than-average prices. Successfully international food service brands are also investing time and effort to local nuances and adapting to it. McDonald’s Veg Only outlet at Vaishno Devi is a case in point. Such a step was unthinkable ten years back. Additionally, domestic retailers have opted for extreme specialization – focusing exclusively on a single cuisine (e.g. Vaango) and even a single product (Goli Vada Pav) to capture the customer’s fancy.
Outlook3
Increasingly, however, it is service innovation that is giving food retailers a unique positioning. Food retailers have also come up with takeaway-friendly products that let the customers’ economize on the need for cooking space and/or devices, as well as on time. There has also been an encouraging rise of such Internet-based vendors as Foodpanda.in, Justeat.in, Megamenu.in, etc. which especially attract younger urban customers with the option of customized food delivery via a collaboration with branded food retailers. Thus, irrespective of whether they have a niche product offering or a diverse menu range, whether they invite customers in to savor an unmatchable dining experience or allow the customer to make a quick pick-up/ delivery order, food retailers have their work cut out.

4. More retail shelf space for gourmet and international foods
The unprecedented success of Masterchef Australia on Indian Prime time television underpin the trend of changing taste and sensibilities of Indian consumer towards food merchandise. Today’s savvy customers, through access to hitherto unavailable media channels, have fine-tuned their choices and expect these preferences to be met even by their local retailers. The sudden mushrooming of gourmet food products on retail shelves is one consequence of this chain mechanism. While gourmet foods only make up about 12-13 per cent of organized food and grocery retail at present, they are expected to burgeon to ~18 per cent over the next four years. This is indicative of how such ingredients as oils, syrups, nuts, spices, vinegar and imported wines may now be found in many households whereas they were only to be seen in fine-dining restaurants earlier. The consequent upwelling of specialty retail outlets like Nature’s Basket, Le Marché Sugar and Spice, Ruci and Idoni, Maison Des Gourmets, Nuts n Spices, etc. to cater to these product categories is only to be expected.

Outlook

Discerning demand for health and beauty products
The health and beauty products category parallels the gourmet foods story. Customers are better equipped with knowledge about healthy foods and wellness services. This creates an opportunity for both health-conscious beverages and foods and for retailing off-the-shelf health and beauty products. Outlets like Yogurberry, Red Mango and JusBooster owe their existence to this demand, while another offshoot of this is the transformation of salon premises into retailing avenues, thanks to the backing of Marico’s, Kaya Skin Clinic, and HUL’s Lakmé Beauty Salons. Stores like Iraya, Nature’s Co., The Body Shop, Fabindia, etc. also prove that the Indian consumer is demanding natural, eco-friendly and ecologically-conscious products.

With the increasing acceptance of invasive and non-invasive methodologies of cosmetology, specialized cosmetic clinics which provide services such as hair loss treatments, weight loss plans, body fat reduction, wrinkle removal etc. will prosper. Again, premium hospitals may emerge as new retail destinations supplying such categories as fitness products, health foods, clothing, maternity care, baby equipment and products, precision eyewear, etc. through brands like Mom n Me, Titan Eye Plus, etc. Here too, e-tailing has a role to play as many of these products can easily be retailed via the Internet.

To Sum Up…
Perennial headaches of retailers as spiralling rental and logistical costs, and rising food prices, can only be tackled through an innovation of available resources. Already retailers have resorted to the requisite revamping in order to maintain – and even maximize, profitability. Retailers need to become more sensitive to such retailing trends of consumers that are not only evolving rapidly but also becoming hard to measure and quantify.  Continous scan of the environment and look out for inflection points offer insights. These insights need to respond in the form of innovative retail formats and product offerings. New formats offer the potential to retail a vast array of products, while transformed product offerings can attract new consumer segments while making brands more appealing to existing customers.  In such a scenario, we may see Indian retailers adopting the globally-accepted model of providing a quality retail experience and brand awareness through flagship stores and exclusive brand outlets, but using alternate channels such as multi-brand outlets, shop-in-shops and e-tailing to maximize sales.

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RAI
Retailers Association of India (RAI) is the unified voice of Indian retailers. RAI is a not for profit organization (registered under section 25 of Companies Act, 1956), works with all the stakeholders for creating the right environment for the growth of the modern retail industry in India. RAI is the body that encourages, develops, facilitates and supports retailers to become modern and adopt best practices that will delight customers. RAI has a three charter aim of Retail Development, Facilitation and Propagation.