Our Bureau

Mumbai, Dec. 21

FOOD and grocery as a segment and hypermarkets as a format are expected to be the major drivers of the organised retail industry in India, according to a research report by Cris Infac.

The organised retail industry is expected to treble its revenues from Rs 35,000 crore to Rs 10,95,000 crore by 2010 on the back of an increase in disposable incomes, demographic changes, which include more women working, rising number of nuclear families, and higher incomes.

However, this growth will entail an investment of Rs 3,100 crore every year, said Mr Nagarajan Narasimhan, Head - Research, Cris Infac.

The organised retail industry is expected to grow at 25-30 per cent per annum in the next five to six years.

According to Cris Infac, food and grocery revenues in the organised retailing market will multiply five times, taking the organised share of this market to 30 per cent.

Though food and grocery stores account for the largest share of retail spent by the consumer at about 76 per cent, about 99 per cent of this market is in the unorganised sector.

In the retail format, hypermarkets are expected to be the most successful format. Food and grocery and hypermarkets are likely to generate the best returns in five years. Most of the growth will come from hypermarkets and, coincidentally, all announcements of expansions by leading players are in this format.

The report also pointed out that metros and mini metros offer six times the retail opportunity offered by tier-2 cities. The penetration in these is low and players should first saturate these markets, Cris Infac has suggested. "Although players are announcing operations in tier-2 cities to tap the first mover advantage and benefit from the real estate differential, this move is not justified," the report said.

According to Mr Narasimhan, the emerging trend of adopting a hub-and-spoke model, especially in the food and grocery category, is aimed at capturing the benefit of superior supply chain management without giving up concerns of proximity to the customer.

This trend holds the possibility of a part of the unorganised segment of the retail market being woven into the growing fabric of organised retailing, the report said.

In terms of returns, food and grocery format scores over the apparel one. Although apparel stores have higher margins, food and grocery stores earn higher returns once the stores stabilise; this is driven by lower fixed costs and significantly higher stock turnover ratios. Private labels have yielded higher margins for most large players. However, inventory accumulation is a risk, the report said.

(This article was published in the Business Line print edition dated December 22, 2005)
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