Organized retail which presently accounts for close to 4 percent of total market will increase its share to over 30 percent by 2013, offering huge potential for growth in coming years, says a study, ‘Indian Retailing-The way forward’.
Retailing in India is characterized by a high degree of fragmentation with street markets and convenience stores (kiranas) accounting for more than 96% of retail business. There are over 10 million outlets, 96% of them are very small with an area of less than 50sqm.
The organized retail sector with emergence of new store formats is recording phenomenal growth and will completely revolutionize retailing over next 3-4 years. The changing structure and scale of retail will critically impact several industries immediately – the retail industry itself, manufacturing, real estate and in the long term, cascading effects will be felt on tourism, information technology and others.
Impact on brand management and advertising will be huge, even as professionals in sales, marketing, merchandising and promotions will have to cope with radical changes. Through backward and forward linkages, growth of retailing impacts the performance of interlinked sectors such as tourism, manufacturing of consumer goods, recreational and cultural services and agro-based industries.
Key market drivers, fueling retail growth will include rapid economic development of India which will positively influence future of retail industry in India since its economic performance in recent years have given rise to more affluent and demanding set of consumers. Consumers are increasingly becoming brand conscious due to greater exposure to western lifestyle and are another key target for retailers.
With rising income levels, contribution of Indian middle class to retail is likely to increase from existing 20 percent now to over 30 percent in next 3 years. Consumers in this segment are likely to spend a greater part of their incomes on further upgrading and diversifying their lifestyles and moving to higher margins under the age of 25 years. It is anticipated that close to 50 percent of their income would go towards retailing in this age group in future.
The study points out that while price has been a key motivator for many purchases among older generation, this notion is being dispelled by younger generation as they become more ostentatious in their purchasing habits, as this brand savvy urban population is likely to derive demand for lifestyle products such as perfumes, jewellery and watches. Therefore, growing consumerism will be a key driver of over-all retail growth in India, said Dr. Piramal.
As per estimates made by ASSOCHAM, the organized retail in urban market is expected to grow at the rate of 50 percent to reach a value of 30 percent of the total retail market in India. Currently, the rural organized retail in India is at nascent stage with hardly a value of 2 percent of total organized retail but the industry expects it to grow over 10 percent by 2013.
Retail in India comprises various segments of which food and grocery is the biggest accounting for around 75 percent of total retail trade. In contrast, food and grocery accounts for minuscule proportion of organized retail penetration. While traditional street markets and kiranas remain the dominant formats, the assault by major retailers like Reliance and Tata into the sector will help to boost the share of sales through the organized route.