Who will bag the most?

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The formats emerging retail entities will adopt come in for discussion.

Quo vadis, retail?
Quo vadis, retail?

Debdatta Das

While trade pundits have already proclaimed retail as the next big sunrise sector, the question that seems to be on everyone's mind is where the sector is headed hereon.

After a series of announcements on high-profile forays,with the frenzy surrounding them beginning to settle down, the real action is starting withretail companies new and old discussing their plans and expansion initiatives.

There are three basic factors that govern the decisions of these retail players:

a) the formats that will gain prominence in the time to come

b) the way rural retail will shape up, considering that many big players are making a beeline for this segment and

c) whether FDI opening up in the sector will aid the barrage of multinationals headed here to exploit the trade rules and conditions, thus putting Indian players at a disadvantage.

With 2006 being proclaimed by most trade analysts as the turning point for the Indian retail industry, a number of different formats emerged. The forerunners were the food and grocery retailing formats vis-à-vis the hypermarkets, supermarkets, convenience stores and the discount outlets.

Niche space

Speciality or niche retailing vis-à-vis lifestyle and luxury retailing also made its presence felt, thanks to growing disposable incomes.

But most sector analysts and industry players seem to agree that it is the food and grocery retail formats that will continue to grow in prominence even as the sector develops at a more than robust pace.

Gibson G. Vedamani, CEO, Retail Association of India, says: "Modern retailing is today growing faster than expected. While the current growth rate is around 30 per cent, the sector is expected to grow at 40-50 per cent on a year-on-year basis over the next two years.

The formats that will gain the maximum are the 60,000-70,000 sq ft hypermarkets and supermarkets that offer a wide variety of products at rates lower than the market price, coupled with the retailing experience, given the consumer's basic outlook of value for money."

He says niche/luxury retailing will also grow, owing to the paradigm shift in consumer attitudes.

Says Subhiksha's Senior President, Atul Joshi, "It is difficult to ascertain which format will gain prominence since retailing formats have to be linked to the product one intends to sell.

But according to us, the discount format will be the single most dominant form of retailing across categories like FMCG, pharma and telecom, since they are daily consumption products."

Subhiksha currently has 500 outlets across India and hopes to reach its target of 1,000 outlets, although no specific deadline has been set for it.

In fact, a fair part of the next 500 outlets will be in the smaller Tier 3 cities having between 50,000 and one lakh households.

Rural mural

Meanwhile, the format that actually got every retailer worth his money to sit up and take notice was rural retail.

So much so that the corporate retail tycoons have finally acknowledged that it is in this space that they have the maximum chances of raking in the moolah, with large parts of the rural population still untapped in spite of harbouring similar aspirations in comparison to their urban cousins.

N. V. Sivakumar, Executive Director and Leader Retail and Consumer Practice, PricewaterhouseCoopers, says, "Rural retailing is the next sunrise segment in the modern retailing sphere.

Almost 30-40 per cent of the country's agricultural produce is wasted currently due to excess production. So, seeing an option to cash in on the situation, most of the big retail companies want to tap into the agricultural produce for their own back-end sourcing, while giving the farmers a similar kind of retail experience that they offer in the urban locales, with certain measured changes such as decreased FMCG prices and greater availability of agricultural inputs like seeds, fertilisers and credit options from various banks across the country."

He said it is extremely surprising that even people living in villages, where the primary source of livelihood is agriculture, want the same value-for-money goods that are offered to the urban population through the modern retail outlets, along with a wholesome retailing experience.

C. K. Vaidya, Managing Director, Godrej Agrovet, one of the pioneers in the rural retailing sphere, says, "Different people have different ideas.

Our model is based on creating a tremendous amount of human capability in rural India through the supply of high-quality products and services, at par with those available in urban India. As organised retail grows, it will go from Tier 1 cities to villages. Aspirations are of similar nature everywhere, affordability is something different."

However, he added that with many retail players aiming to foray into the rural segment, Godrej would not only have to be cost-competitive but also focus on building relationships with the farmers.

The Rs 1,000-crore company plans to increase the number of its rural retail outlets, Aadhaar, from 31 to 50 by March 2007. This will involve investments of Rs 1 crore - Rs 1.5 crore per big outlet and around Rs 50 lakh per small outlet.

Reliance Retail is also planning to make its presence felt in rural retailing through its existence in around 1,600 villages by creating rural business hubs. It has already started running its pilot outlets in rural Punjab. These will be soon followed by outlets in Haryana, Rajasthan and Andhra Pradesh.

(This article was published in the Business Line print edition dated January 25, 2007)
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